RBI issues circular to all NBFC on financing for Housing Projects

By Prashant Chaubey

In conformance with the Honourable High Court of Judicature at Bombay observations, the Reserve Bank of India (RBI) on 6th May 2010, through a circular advised all Non-Banking Finance Companies of the country granting finance to housing / development projects that they should insist on disclosure of the charge or any other liability on the housing project being duly made in the brochures or pamphlets or advertisements which may be published by the developer or owner of the development project inviting public at large to purchase flats and properties.

To achieve the abovementioned, while granting finance to housing or development projects, NBFCs should incorporate a clause in the terms and conditions agreement with the builder or developer to disclose in pamphlets / brochures / advertisements, information regarding mortgage of property to the NBFC and if required, the developer would also provide No Objection Certificate (NOC) or permission of the mortgagee (the creditor or lender in a mortgage agreement / NBFC) entity for sale of flats or property.

RBI has advised all NBFCs to ensure compliance with the circular and has asked NBFCs not to release funds to builder / developer / owner /company pending their compliance with the abovementioned.

The abovementioned stipulations have earlier been applied by RBI on Scheduled Commercial Banks through a circular released on 27 August 2009 and on Urban Co-operative Banks through a circular released on 26 October 2009.

The aforementioned requisites would help in improving transparency in the real estate sector. It would also enable potential buyers in their buying decisions. Additionally, it may also help in improving the credibility of the housing projects among buyers as banks and NBFCs provide financing after proper due diligence and feasibility study.