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This master circular consolidates instructions on housing finance issued to primary urban co-operative banks up to March 31, 2024. Primary urban co-operative banks grant housing loans to individuals, housing societies, housing boards, and property owners. Urban co-operative banks comply with loan limits, security norms, exposure caps, and priority sector lending rules. Urban co-operative banks revise policy frameworks and apply penal charge instructions to fresh loans from April 1, 2024, and switch existing loans by June 30, 2024.
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RBI/2024-25/10
DOR.CRE.REC.No.6/07.10.002/2024-25
April 2, 2024
All Primary (Urban) Co-operative Banks
Madam/Dear Sir,
Master Circular - Housing Finance for UCBs
Please refer to the Master Circular DOR.CRE.REC.No.9/07.10.002/2023-24 dated April 11, 2023 on the captioned subject, consolidating the instructions / guidelines issued to UCBs till April 10, 2023. Attached is the revised Master Circular, updated to reflect all instructions issued upto March 31, 2024 on the above matter, as listed in the Appendix. It may be noted that this Master Circular only consolidates all instructions on the above matter issued up to March 31, 2024 and does not contain any new instructions/guidelines.
Yours faithfully
(Vaibhav Chaturvedi)
Chief General Manager
Encl: as above
Master Circular
Housing Finance for UCBs
Contents
1 General
2 Eligible Category of Borrowers
3 Eligibility for Housing Finance
4 Terms and Conditions for Housing Loans
4.1 Maximum Loan Amount and Margin
4.2 Interest rate, foreclosure charges / prepayment penalty and reset of floating interest rate on Equated Monthly Instalments (EMI) based housing loans
4.3 Penal Charges
4.4 Security
4.5 Period of Loan
4.6 Graduated Instalments
4.7 Aggregate Limit for Housing Finance
5 Additional / Supplementary Finance
6 Lending to Housing Boards
7 Advances to Builders / Contractors
8 Housing Loans under Priority Sector
9 Precautions
10 National Building Code
• Annex 1
• Annex 2
• Appendix
1.1 The role of primary (urban) co-operative banks (UCBs) in providing housing finance has been reviewed from time to time. These banks, with their vast network, occupy a very strategic position in the financial system and have an important role to play in providing credit to the housing sector. Further, housing finance to specified categories up to prescribed limits is treated as priority sector lending, and the need for UCBs providing credit to priority sector has come to be increasingly recognised consistent with the social objectives placed before the banking system.
1.2 Therefore, with a view to enabling the UCBs to play a more positive role in providing finance for housing schemes, particularly to the weaker sections of the community, these banks are permitted to grant loans for housing schemes up to certain limits from their own resources subject to the guidelines detailed hereunder.
1.3 Bigger banks that have large surplus resources may undertake larger lending for housing, as this will provide a remunerative avenue for investment of their surplus funds.
1.4 Wherever banks are still required to obtain special permission of the Registrar for financing housing societies, it is suggested that these banks should obtain general permission to finance housing societies subject to such terms and conditions as may be prescribed for the purpose.
UCBs may grant loans to the following categories of borrowers:
Individuals and co-operative / group housing societies.
Housing boards undertaking housing projects or schemes for economically weaker sections (EWS), low income groups (LIG) and middle income groups (MIG).
Owners of houses / flats for extension and up-gradation, including major repairs.
The borrowers in the above categories will be eligible for finance for the following purposes:
Construction / purchase of houses / flats by individuals
Repairs, alterations and additions to houses / flats by individuals
Schemes for housing and hostels for scheduled castes and scheduled tribes
Under slum clearance schemes - directly to the slum dwellers on the guarantee of the Government, or indirectly through Statutory Boards established for this purpose
Education, health, social, cultural or other institutions / centres which are part of a housing project and considered necessary for the development of settlements or townships
Shopping centres, markets and such other centres catering to the day to day needs of the residents of the housing colonies and forming part of a housing project
Finance provided by the UCBs to the eligible categories of borrowers shall be subject to the following terms and conditions:
4.1 Maximum Loan Amount & Margins
(i) UCBs, based on their commercial judgment and other prudential business considerations, with the approval of their Board of Directors, are free to identify the eligible borrowers, decide margins and grant housing loans depending upon the repaying capacity of borrowers.
(ii) Tier-1 UCBs ^1 are permitted to extend individual housing loans upto a maximum of ₹60 lakh per individual borrower and UCBs categorized in Tier-2 to 4 can extend individual housing loans up to a maximum of ₹140 lakh per individual borrower subject to extant prudential exposure limits.
(iii) The prudential exposure limits for UCBs for a single borrower/party and a group of connected borrowers/parties shall be 15 per cent and 25 per cent, respectively, of their tier-I capital.
4.2 Interest rate, foreclosure charges / prepayment penalty and reset of floating interest rate on Equated Monthly Instalments (EMI) based housing loans
4.2.1 Interest rates
Banks may, with the approval of their Boards, determine the rate of interest, keeping in view the size of accommodation, degree of risk and other relevant considerations. UCBs shall also be guided by provisions contained at para 4.1 of the Master Circular on Management of Advances – UCBs dated July 25, 2023, as amended from time to time.
4.2.2 Foreclosure Charges / Prepayment Penalty
With effect from June 26, 2012 it has been decided that UCBs will not be permitted to charge foreclosure charges / prepayment penalties in home loans extended on floating interest rate basis.
4.2.3 Reset of floating interest rate on EMI based housing loans
At the time of sanction of EMI based floating rate housing loans, UCBs are required to take into account the repayment capacity of borrowers to ensure that adequate headroom/margin is available for elongation of tenor and/or increase in EMI, in the scenario of possible increase in the benchmark rate during the tenor of the loan. Further, UCBs are advised to put in place an appropriate policy framework for reset of floating interest rates on EMI based housing loans, complying with the requirements contained in the circular DOR.MCS.REC.32/01.01.003/2023-24 dated August 18, 2023.
4.3 Penal charges
4.3.1 Penalty, if charged, for non-compliance of material terms and conditions of loan contract by the borrower shall be treated as ‘penal charges’ and shall not be levied in the form of ‘penal interest’ that is added to the rate of interest charged on the advances. Levy of such penal charges shall be governed in terms of the circular DoR.MCS.REC.28/01.01.001/2023-24 dated August 18, 2023 on “Fair Lending Practice - Penal Charges in Loan Accounts”.
4.3.2 UCBs may carry out appropriate revisions in their policy framework and ensure implementation of the above instructions in respect of all the fresh loans availed from April 1, 2024 onwards. In the case of existing loans, the switchover to new penal charges regime shall be ensured on the next review/ renewal date falling on or after April 1, 2024, but not later than June 30, 2024.
4.3.3 A set of frequently asked questions (FAQs) providing clarifications related to implementation of the guidelines on penal charges has been uploaded in the FAQs section of the RBI website.
4.4 Security
4.4.1 UCBs may secure housing loans either
4.4.2 Where this is not feasible, banks may accept security of adequate value in the form of LIC policies, Government Promissory Notes, shares / debentures, gold ornaments or such other security as they deem appropriate.
