Mumbai: The National Housing Bank (NHB) has advised housing finance companies (HFCs) to desist providing loans to finance subvention schemes offered by builders to sell homes, according to a circular issued by the regulator.

The new guideline from the NHB came after reports of HFCs as well as their individual borrowers being exposed to additional risks in case of housing loan products involving subvention schemes offered by builders.

“Instances of frauds having been allegedly committed by certain builders using subvention schemes have also been brought to the notice of the NHB," the circular said.

The housing regulator has also recommended that housing loans should be offered strictly linked to different stages of construction and no upfront disbursal should be made in case of incomplete projects.

For housing projects sponsored by government bodies, HFCs may disburse housing loans according to payment stages prescribed by authorities, “provided such authorities have no past history of non-completion of projects."

The NHB has also asked HFCs to put in place a well-defined mechanism for monitoring the progress of construction of housing projects and obtain borrowers' consent before releasing payments to developers.

However, merely obtaining the borrower's consent and releasing funds by the company without linkage to different stages of construction will be seen as dereliction of duty of the HFC, it said.

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