Comparative study of interest rates on housing loan

1. CONTENTS
Chapter No. Title Page No.
01 INTRODUCTION
1.1 Introduction
1.2 Research Design
 Statement of the Problem
 Objective of Study
 Research methodology
 Limitations of Study
 Layout of Chapters
02 REVIEW OF LITERATURE
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2. 03 PROFILE OF INDUSTRY/ COMPANY
3.1 Introduction: Banking sector
3.2 Growth Of Bank
3.3 Functions of Banking
3.4 Nationalization of Financial Institutions
3.5 Nationalization of 14 major commercial banks in 1969
3.6 Commercial bank
3.7 Scheduled banks
3.8 Non Scheduled Banks
3.9 History of PNB
3.10 Profile of PNB
3.10 Outlook
3.12 Vision, Mission ,Values and Ethics
3.13 Products and Services
3.14 Awards
04 Analysis of Data
Trends In Housing Loan Interest Rates
Comparison Of Banking Facilities
Comparison Of Interest Rates Of Different Banks
Housing Loan Best Interest Rates
Market Share Of Major Players
Comparison Of Major Players
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3. 05 FINDINGS, SUGGESTIONS AND CONCLUSION
Findings
Suggestions
Conclusion
BIBLIOGRAPHY
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4. LIST OF TABLE & CHARTS
LIST OF TABLES
TABLE NO. TITLE OF TABLES PAGE NO.
T1 The table Showing PNB special Housing
Loan Scheme for new accounts under fixed
option with re-set clause of five years
T2 Table showing guidelines of medical
examination based on clarifications received
from Life Insurance Corporation of India
(LIC)
T3 Table showing comparison of banking
facilities
T4 The table showing comparison of interest
rates of different banks
T5 The table showing housing loan best
interest rates
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5. List of Charts
CHART NO. TITLE OF CHARTS PAGE NO.
C1 The chart showing structure of Indian
banking system
C2 The chart showing trends in housing
loan interest rates
C3 The chart showing market share of
major players
Executive summary
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6. Few decades back, buying a home was not a very easy task as there were hardly any lenders
available to loan the ever increasing astronomical lump sum of money. However, with time,
the rising property prices and the burgeoning housing finance market in the country, made the
phenomenon of the home loans easy and the dream of buying a home possible. Also, the
HFC’s (Housing Finance Companies) and banks have come up with so many home loan
plans that they have become an answer to every customer’s necessity. Apart from this, the
changing equation of market has also provided customers with several reasons to opt for a
home loan. Here are few reasons to why home loans have gradually became a necessity in the
society.
The need for home loans arises not because property prices are heading upwards all the time
but because home loans make great sense from a long-term savings perspective. Not only are
home loans a handy tool for the common man to own a roof over his head but they also help
save money in the long run.
With skyrocketing real estate prices, people are increasingly opting for housing loans to
acquire their dream home. Interest rates are coming down all the time and the housing
finance companies are literally falling over each other to lure the prospective home-seekers.
Like all other commercial banks PNB is also having home loans in their portfolio.
Frequent changes in regulation made by central bank affect the banks to a larger extent
because banks have to follow according to the directions given by the central bank which
reduces the profit of the bank.
Now a days banks cannot charge their own management interest rates they are force to look
the market and follow according to the RBI rules and regulations, this has unable them to
balance both the income and expenses, for eg., now the fixed deposit interest rate is 10.5%
and is housing loan interest rate is 8.5%, they have the bear the loss of -2% which the banks
have to pay themselves. Middle class people cannot afford to the current interest rate, it is too
expensive for them.
To broaden the customer base the vast middle income strata should be fully exploited who
are very sentimental about house property in India Simplify the procedure, reduce service
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7. charges, and demand only the basic essential proof. Most banks are reluctant to advance loan
to the service class e.g. lawyers, police officers etc.. This aspect must be exploited.
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8. CHAPTER-01
INTRODUCTION
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9. INTRODUCTION
Housing loan means any loan or advance granted to an individual or any other entity which
may be specified by RBI from time to time for the purpose of construction/ repairs/
upgradation of a house or residential property or acquisition of a house or residential property
or both i.e.house and residential property.
A roof over one's head and ground beneath one's feet count as the bare
necessities of life. There’s nothing quite like owning a home, however humble,
to give one that warm and glowing feeling. But when one buys a home, one has
much more than a feel-good purchase in mind: it’s also a crucial investment
decision, perhaps the biggest spending decision of one's life. There are ample
opportunities today for young salaried investors to plan their moves early and
buy a house at the right time — and at the right price. In the process, not only
do they fulfill that cherished dream of owning a house, but also put themselves
on the path to acquiring property that would meet the needs and aspirations of
their growing family, even as it leads to wealth creation. Every individual
aspires to own a home. But many either spend a lifetime saving to purchase a
house or exhaust money on monthly house rents.
Take a house loan and let the monthly rent (easily converted into
affordable EMIs) build dream home.
1.1Profitable Proposition
“The overall demand in the residential sector has grown by about 7-8 per cent
in the past few months as compared to the same period last year. The growth is
on account of two main factors:
 One, income-tax exemption;
 Two, with no similar rebates available for individuals in the high-income
group, they are creating a second asset.
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10. Add to this the stable property prices over the last year and plunging interest
rates, planning for dream home could not have been better timed. Rock-bottom
interest rates, standardization of the periodicity of interest calculation across
lenders (which makes it easier to compare loans), lower interest charges,
waiver of loan application processing fees and, a customer-friendly attitude is
reason enough to celebrate the ascension of the home loan consumer as the
king.
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11. RESEARCH DESIGN
 Statement of the problem:
A strong banking sector is important for flourishing economy. The failures of the
banking sector may have an adverse impact on other sectors. This Study will help us to
understand the housing loan about banking services and products. In this background this study tries
to analyze the housing loan interest rate towards banking services.
 OBJECTIVE OF THE STUDY:
The objective of this study is
• To analyze the history of Punjab national bank.
• To analyse the home loans with a view to arrive at the most popular loan
schemes offered by the banks under study
• Conclude from the analysis the best possible housing loan schemes which
would keep the bank ahead of competition.
• The reasons being the features that the scheme provides are not being provided
by many of the housing finance companies.
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12. RESEARCH METHODOLOGY:
Research Methodology is an important part of every project. Because it help in knowing
how to select representative sample from the world or the general population, the right
research tools and techniques to complete the research.
To satisfy the customer the study of consumer behavior is important because he is the king.
The Research Process is based on survey method, so in order to implement the survey we go
to Service Provider and the Services user which is the customers.
The research involves the following steps :-
♦ Define the problem & research objective - The problem and objective is to assess the
services offered by various service provider and what the consumer wants.
♦ Developing the research Plan - The second stage of research methodology is to develop a
research plan.The research plan desigined to take decesion on the data soruces, research
approaches, research, instruments, sampling plan and contact methods.
♥ Survey Research – It was a descriptive research.
♦ Research Instrument – The use of an effective research instrument is very important.
Because through this instrument we collect data. In this project through observations &
personal interviews were conducted.
♦ Personal Interview – As we were doing direct selling. we interacted with my customers
are asked about there views in selecting a service and what are there wants and
expectations from a service provider
♥ Sampling Plan - After finalizing the research approch and instruments a sampling must
be designed.
♦ Sampling Unit –data have been collected from banks
♦ Sample size – It has been collected from four banks.
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13. • Sampling Procedure :- What process should be used to collect the sample. So,
representation samples, convenience sampling is used.
♦ Collect the Information :-After completing all the steps, the data are collected from
different sources.
Primary data:
Information is collected through direct interview with employees and other banks.
Secondary data:
• Website.
• Bank old record books.
• PNBO’s compliments
♦Analyze the Information:-After the data is collected they are analyzed to Know the
findings. The data is then tabulated to develop frequency distribution.
♦Present the findings:-As the last step, the findings are presented that are relevant to
the major marketing decisions.
 Limitation of the study:
• Because of heavy work, the external guide cannot spend more time for interaction.
• This study is limited to Hassan branch of PNB.
• Since the bank is so wide so it was not possible for me to cover all the branches of
PNB.
 Layout of Chapters
1. Introduction
2. Profile of Industry
3. Research methodology
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14. 4. Data analysis and interpretation
5. Findings ,suggestions and Conclusion
CHAPTER-02
REVIEW OF
LITERATURE
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15. Review of Literature
PNB FOR HOUSING NEEDS
HOUSING FINANCE SCHEME
In terms of RBI guidelines, banks can deploy their funds under the Housing Finance
allocation in any of the three categories i.e:-
i. Direct finance;
ii. Indirect finance or;
iii. Investment in bonds of NHB/HUDCO or combination thereof.
Direct Housing Finance:-
Direct Housing Finance refers to the finance provided to individuals or groups of
individuals including cooperative societies. In view of freedom granted by RBI to banks to
evolve their own guidelines on the terms and conditions as regards security, margin, age of
the dwelling units and repayment period for direct housing loans, bank has in place Direct
Housing Finance Scheme for individuals which is given as under:
1) ELIGIBILITY:- Individuals. Joint owners are also eligible.
2) PURPOSE:-
a) For construction of house or purchase of house/ flat. Loan can also be
extended for purchase of land/ plot for house building.
Under- construction houses/ flats of private builders- finance be permitted for
purchase of under- construction houses/ flats of only those private builders’ projects/
private builders, which have been approved by Circle Heads, as per criteria given in
this circular.
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16. b) For purchase of house/ flat from the original allottee, i.e. on first power of
attorney basis, where the Housing Board/ Development Agencies, such as
DDA,GDA, etc., permit conversion of leasehold property into freehold to the
allottee of property. However, advance is not permitted against plots
purchased on power of attorney basis.
c) For carrying out repairs/ renovation/ additions/ alterations/ cost of furnishing
to the house/ flat.
3) EXTENT OF LOAN:-
a) Need- based loan for construction of house/ flat or purchase of house/ flat
depending upon the project cost and repaying capacity of the borrower.
However, maximum amount of Rs. 20 lacs can be sanctioned for purchase of
land/ plot for house building. Circle Heads & above may consider loan for
purchase of plot/ land maximum upto Rs. 50 lacs depending on merits/
genuineness of each case/ repaying capacity and after fully satisfying about
the realistic valuation of the land/ plot.
b) In respect of purchase of built up/ complete houses/ flats from private builders,
where valid mortgage is created, finance be permitted by the officers at
various levels as per their normal powers for sanction of term loan, under the
scheme, across all centres, after due diligence, proper valuation as per Bank’s
guidelines, and subject to compliance of directives of Hon. High Court of
Delhi (reiterated in subsequent paragraphs in this circular) and other
guidelines, applicable under the scheme. Compliance of Apartment Ownership
Act passed by the state, wherever applicable, be also ensured.
c) Circle Heads & above may allow Housing Loan on pari passu or second
charge basis only to confirmed employees of central/ state government/ Public
Sector Undertakings (PSUs) maximum upto Rs. 20 lacs. The quantum of loan
be decided taking into account the amount of earlier loan availed and repaying
capacity of the borrower.
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17. d) For repairs/ renovation/ additions/ alterations, the maximum amount of loan
shall not exceed Rs. 20 lacs.
e) Cost of furnishing may be included in the project cost maximum upto 10% of
the amount of loan permissible for the purpose of repair/ renovations/
additions/ alterations which is maximum Rs. 20 lacs (i.e. maximum amount of
loan for cost of furnishing shall be upto Rs.2 lacs).
f) Cost of car parking:- if the car parking place is located in the same building/
society/ compound, the cost of car parking upto maximum extent of 5% of the
cost of flat/ house) can be reckoned with/ included for granting housing loan.
However, it is to be noted that car parking area should be identifiable, specific
and be clearly mentioned in the sale agreement/ allotment letter. (RBDA- 40
dt 04.08.09).
4) MARGIN:
a)For construction of house or purchase of house/ flat or for carrying out repairs/ renovation/
additions/ alterations to existing house/ flat as well as for furnishing ---- 25%*. (increased
from 20% w.e.f.11.10.2007 –RBD Advances Circular 45/07)
*(Acquisition cost of plot including stamp duty and registration charges, if any, paid by the
borrower be also considered towards margin money).
b) for purchase of land/ plot for house building: ---- 40%.
5) RATE OF INTEREST (effective from 01.08.2008):- 9.25%
6) SECURITY:-
a) Equitable/ registered mortgage of the property.
b) Where mortgage cannot be created immediately in situations like house/ flat is being
purchased/ allotted by the Housing Board, Development Authorities or Co-operative Society,
and title/ conveyance deed are executed in favour of purchaser only after completion of
construction & possession/ making full payment of the cost of house/ flat, a stamped tripartite
agreement be executed amongst Housing Board/ Development Authority/ Co-operative
Society/ Builder, the intending borrower and the bank before release of the loan. ( By
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18. entering into tripartite agreement among authority/ seller, allottee/ purchaser and bank, bank
gets direct privity with the authority/ seller.)
To secure such loan, guarantee of person(s) acceptable to the bank be obtained. Circle heads
& above are, however, authorized to waive the guarantee on merits of each case for the
projects of highly reputed approved private builders.
c) In respect of purchase of house/ flat on first power of attorney basis, equitable/ registered
mortgage of some other property/ pledge of govt. security, NSCs, KVPs, IVPs/PSU bonds
(where interest is being serviced regularly)/ banks’ FDR/LIC policies (surrender value), etc.,
equal to 125%* of the loan amount be obtained.
*In respect of loan for purchase of house/ flat on first power of attorney basis, Circle Heads
(irrespective of any scale/ officers in Circle offices of the scale of V and above may permit
obtention of above referred security equal to 50% of the loan amount.
d) In situations where:
i. The mortgage by deposit of Title Deeds is not possible, the property being an
Ancestral Property (without Title Deeds) or Lal Dora Land, OR
ii. There is delay in execution/ unwillingness to execute a stamped Tripartite Agreement
by Housing Board/ Development Authority/ Cooperative Society, the sanctioning
authority may accept, at its discretion, equitable/ registered mortgage of some other
property/ pledge of government security, NSCs, KVPs, IVPs/ PSU bonds (where
interest is being serviced regularly)/ banks’ FDR/ LIC policies (surrender value) etc.
the value of such security so obtained should be equal to 125% of the loan amount.
The details of such situations, along with reasons of obtaining alternative security as
detailed above, must clearly be specified in the sanction note by sanctioning authority.
e) Security verification to be carried out once in two years for regular accounts after initial
end use verification and on half yearly basis in case of NPA accounts. In case of two
continuous default in repayment, inspection should be carried out immediately.
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19. Loan on pari passu or second charge basis
f)Circle Heads and above are empowered to consider requests only from confirmed
employees of central/ state govts. /public sector undertakings foe an amount of loan of
maximum upto Rs. 20 lacs and extend credit to such employees, who might have raised funds
for construction/ acquisition of accommodation from other sources and need supplementary
finance after obtaining pari passu or second charge over the property mortgaged in favour of
other lender.
Disbursement:-
a. For outright purchase of house/ flat & plot, the loan will be paid in lump sum to the
vendor at the time of registration after satisfying that borrower has paid/ provided for
the balance amount/ his contribution.
b. For house/ flat under construction, the loan amount will be disbursed in stages
depending on progress of construction i.e. at stage like completion of plinth,
construction upto lintel level, completion of roof etc. and/or demand raised by selling
agency after ensuring that the borrower has invested his pro-rata share towards
required margin. Request for down payment can be permitted by sanctioning
authority, in respect of under- construction houses/ flats of builder/ developers of
national repute, subject to availability of tangible collateral security of the value of at
least 50% of the down payment to be disbursed. (Names of builders/ developers of
national repute will be finalized with the approval of Field General Managers/
General Manager RBD: HO). {RBDA/40 dt 04.08.09}
c. In case of repairs/ renovation/ addition/ alteration, incumbents to ensure that after
having disbursed 50% of the amount sanctioned, the subsequent disbursement (s)
should be after proper verification that the amount earlier disbursed has been utilized
as per estimates submitted by the borrower and that he has invested his pro-rata share
towards required margin.
d. On completion, a certificate be obtained from approved architect/ qualified engineer,
certifying the end use of funds granted by the bank.
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20. e. a) A clause be put in the Sanction letter that any third party liability coming on the
bank due to wrong information/ detail given by the borrower, will be his/ her
responsibility;
b) Building plan duly approved by competent authority be made a pre- condition for
considering housing loans (LA 65 DT 27.05.09).
8) Insurance:-
The property will be kept insured for reconstruction cost ( and not the market value
or the limit sanctioned for houses/ flats as the reconstruction cost will be higher as compared
to limit sanctioned) in respect of fire, riots and wherever required, against other appropriate
hazards, such as earthquake, flood etc by the borrower, with usual bank clause.
However, the BMs should ascertain by reviewing on an ongoing basis that the adequate
coverage of insurance is available for reconstruction cost at all times, as the cost may increase
during the period of insurance policy, which generally is being taken for a period of 10 years.
Subsidiaries of General Corporation are issuing insurance policy, specifically to cover risks
relating to housing. These policies are called “Fire Police A”, which cover risks such as fire,
lightening, riot, strike, terrorism, storm, cyclone, typhoon, hurricane, tornado, flood,
inundation, earthquake, fire & shock. These policies can also be issued on one time basis for
a period of 10 years at a reduced premium i.e. 50% of the normal premium. The value of the
property is based on rate of construction of the building as per the PWD rates for that
particular region and the same is suitably loaded for extra fittings and fixtures, superior
constructions and other relevant details.
In fire insurance, building above the plinth and foundation is covered. However, when the
policy is extended to cover the risk of earthquake then the cost of plinth and foundation can
be included in the sum insured.
IFFCO TOKIO GENERAL INSURANCE CO. LTD.- the coverage for accidental death and
permanent total disability ( due to an accident) bundled with the mandatory insurance ‘Fire
Policy- including earthquake’ is also offered in tie up arrangement with Iffco Tokio General
Insurance O. Ltd., to all existing as well as new Housing Loan borrowers who are individuals
(single or joint). Reference may be made to the relevant circulars issued by Retail Banking
Division on the subject.
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21. Grah raksha kavach- life insurance cover (both due to natural and accidental death) to bank’s
existing as well as new housing loan borrowers is also offered in tie up arrangement with
TATA-AIG, in the shape of a single premium reducing term assurance policy. Reference may
be made to the relevant circulars issued by Retail Banking Division on the subject.
9) Repayment:-
a) Loan alongwith interest is to be re-paid in equated monthly installments within a
period of 25 years (10 years in case of repair/ renovation/ addition/ alteration),
inclusive of moratorium period, if any. Moratorium or repayment holiday may be
permitted where the house is constructed till completion of construction or 18 months
(6 months in case of repair/ renovation/ addition/ alteration) from the date of
disbursement of first instalment of the loan, whichever is earlier. However, Circle
Head and above may further relax the moratorium period by six months. (RBDA/40
dt 04.08.09)
Further, in those cases where a moratorium period is allowed by the sanctioning
authority, where loan is allowed for construction purposes, It may be ensured that the
amount of expected accrued interest, on monthly compounded basis, for the period of
moratorium is added to the loan (principal) amount presuming that the entire loan is
disbursed on the date of first disbursal itself and EMI calculated accordingly.
However, there may be situations where Sanctioning Authority is required to quote
EMI matching to the EMI quoted by our competitors, this is on account of recovery of
interest component chargeable in the account, during the period of moratorium, by
some of the Housing Financial Institutions/ Banks. Therefore, it is desirable that the
prospective borrower is suitably advised and given the option, at his/ her specific
request, of either:
I. Repaying the interest component chargeable in the account during the period
of moratorium and EMI thereafter OR
II. In case borrower exercises the option of not paying interest during the
moratorium period, interest component chargeable in the account for the
moratorium period would be spread over the EMIs for the entire repayment
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22. period. The EMI in such cases be appropriately worked out and advised
presuming that the entire loan is disbursed on the date of first disbursal itself.
In case of loans to individual members of Group Housing Societies, the
repayment shall start form immediate subsequent month after the final
disbursement of the loan.
b) In case of purchase of ready built house/ flat or land/ plot, the repayment to start after
the date of possession or 3 months from the date of advance whichever is earlier.
c) i) Repayment should be fixed on a realistic basis, which should not normally exceed
50% of gross income. For this purpose, all deductions including the proposed
Housing Loan instalment should not exceed 50% of gross income.
ii) However, in cases where gross monthly salary is above Rs.50,000, deductions can
be permitted upto 60%. Circle Head & above may, however, permit salary deductions
upto 70% in case of person whose gross monthly salary is minimum Rs.1.00 lac.
(This provision is, however, not applicable in respect of Housing Loans to NRIs/
PIOs).
iii) The relaxation in salary criteria of the prospective Housing Loan borrower, as
above, will be permitted only on a very selective basis after assessing in detail the
domestic requirements of his/ her family/ dependent members, including future
obligations and recording complete justifications.
iv) The income of the spouse and earning children (whether married or unmarried)
should be taken into account for determining the income for the purpose of
borrowers’ repaying capacity. The income of the joint owners of the property may
also be added for determining the repaying capacity. In such cases, they should be
made co-borrower.
v) Father/ mother can also be made as co-borrower in cases where property is in the
single name of his/her son and also clubbing of their income be permitted for the
purpose of eligibility/ repayment of loan.
In case of self employed individuals the gross income may be arrived at by adding
amount of depreciation to the net profit amount and repaying capacity be assessed
accordingly.
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23. Likely rental income, if the property is to be let out be also considered for determining
the repaying capacity. The same be assessed on the basis of the rental value in the
locality in which the house/ flat is located. The market report may be gathered from
the property dealers of the locality and a mention of the same way clearly be made in
the sanction note.
d) Sanctioning authority may consider fixing the monthly installments on graduated
basis, if there is reasonable expectation of growth in the income in the coming years
on specific request from the borrower.
e) Repayment of the loan along with interest should not ordinarily extend beyond the
age of 65 years of borrower. Hub Incharge in the rank of scale iv & above/ Circle
Head may relax repayment period upto the age of 70 years.
In case loan is allowed to joint owners, it should be ensured that at least one of the
joint owners should be able to repay the loan along with interest maximum upto the
age of 65 years.
The Hub Incharge in the rank of iv & above/ Circle Head may consider repayment
tenor according to the age of co-borrower (who is not co-owner), maximum upto his/
her age of 70 years, based on due diligence/ merits of each case.
f) In order to ensure that regular installments are received and defaults are minimized it
be ensured as under: minimum 24 advance cheques signed by borrower towards
repayment of monthly instalments along with Letter of Deposit be obtained. However,
when the number of cheques with the branch reaches six (6), the borrower to give
additional 24 cheques duly signed. This system of giving additional cheques shall
continue till the adjustment of the loan. The guidelines for safe custody of advance
cheques circularized by Inspection & Control Division be followed. OR Irrevocable
Letter of Authority from the borrower to the employer for either remitting the salary
to the bank or for remitting the monthly instalment for repayment of loan to the bank.
An acknowledgement of the said letter of authority from the employer be kept on
record. Further, in cases where employer remits the salary to the bank, an irrevocable
letter of authority from the borrower be obtained for debiting the amount of
instalment to the SF account.
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24. Illustrative charts indicating EMI to cover repayment of principal and interest on
‘upfront / advance basis’ and on ‘arrear basis’ are available as at proforma-I of the
circular.
Effect of upward revision in interest rates on repayment:- the borrower always has
one of the following options to exercise for repayment of loan:-
a) To pay increased amount of EMI;
b) To continue to pay the existing amount of EMI with condition that the balance
outstanding in the account would be paid in one go with last EMI of the originally
applicable repayment tenor;
c) To prolong the repayment period.
In case no option is given by the borrower, the option (c) i.e. to prolong the repayment
period appropriately be implemented, subject to the condition that in the event of revision
in interest rate to be charged in the account, if a borrower shifts to the next higher bracket
of repayment tenor, the applicable rate of interest will be charged for the original
repayment bracket/ tenor.
The borrower should, however, invariably be intimated about the change in the interest
rates, as and when it takes place. Necessary changes in repayment period of loan also be
made in the system every time any change In interest rate is effected, so that account does
not show any irregularity in regular repayment of the loan, due to above adjustment/
reschedulement.
10) Upfront fee & documentation charges:- in the data analysis chapter, its specified below.
11) Loaning powers:.
12) Pre payment charge: to avoid take over/ shifting of housing loan accounts by other banks/
financial institutions a flat per-payment charge of 2% be recovered from all those borrowers
who intend to shift their Housing Loan Accounts to some other banks/ financial institutions
by way of availment of loan from such banks/financial institutions. This pre-payment charge
is recoverable on all fresh loans sanctioned under the scheme on or after 5.12.2001 or in those
existing accounts where facility of lower rate of interest is allowed.
However, no prepayment charges are to be levied in the following cases:-
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25. i. where the loans are prepaid by the borrowers from their own sources.
ii. Where the borrower shifts to other bank within 30 days from the date of issuance of
circular for upward revision in the rate of interest to be charged in his account or
change in other terms of sanction.
Penal interest for non- construction of house (RBDA/ 40 dt 04.08.09):-
Existing guidelines:- Further, to avoid speculative activity, a flat pre-payment charge of 2%
be recovered from all those Housing Loan borrowers, who avail Housing Loans for purchase
of plot/ land and pre-pay the loan before 5 years without undertaking construction. This pre-
payment charge is recoverable on al fresh loans sanctioned under the scheme on or after
1.9.2004.
Revised guidelines:-In case construction of the house is not completed within 3 years from
date of disbursement of the loan or in case the plot/ land is sold, penal interest at 2% over &
above the prescribed rate of interest will be charged. Circle Heads & above may, however,
reduce penal rate of interest, maximum by 1% p.a. on merits of each case like general/ real
constraints faced by the borrower in construction of house on account of lack of infrastructure
development, no development in locality/ colony/ area etc where plot/ land is located
(RBDA/40 dt 04.08.09).
13) Expression of interest (in principle sanction):- to facilitate the prospective Housing Loan
borrowers who are interested in knowing what amount of loan he/ she is entitled and to help
them to take a decision on purchase of the property, branches may issue a letter to the
prospective borrower conveying “expression of interest” (in- principle sanction) on the
prescribed proforma (Annexure-18). The introduction of such a facility is with an objective to
provide greater flexibility in negotiations/selection of property to the prospective borrowers.
To safeguard the bank’s interests, it be clearly specified while conveying the ‘expression of
interest’ that though bank conveys’ its ‘expression of interest’, the bank is under no
commitment or obligation to sanction/ disburse loan. The actual sanction or disbursal will
depend upon receipt of application complete with all particulars, the value and acceptability
of the security offered (i.e. the house/ flat to be financed), legal and technical clearances and
the creation of the valid equitable mortgage etc. further, ‘expression of interest’ shall be valid
for a period of three months from the date of its issue.
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26. 14) Issuance of interest certificates:- an interest certificate may be issued to the borrower(s)
who have availed housing loan from the bank for availing benefits under the provisions of
income tax act on the prescribed proforma (Annexure-19).
15) Other guidelines:-
a) Circle Heads & above will have full discretion with regard to moratorium period,
insurance.
b) Need- based bank credit (within the overall limit of Rs.20 lacs) as housing finance can
be extended for repairs, additions, etc. to a building/ house/ flat irrespective of
whether it is occupied or tenant occupied. For this purpose, estimate of cost of repair,
addition, etc., and the certificate of completion of work done be obtained from
qualified engineer/ architect.
c) Requests for additional finance may also be considered for carrying out alterations/
additions/ repairs to the house/ flat already financed by the bank.
d) There is no bar in providing finance to a person who or whose spouse already having
house or flat in his/ her name.
e) In case of default in repayment of loan, the borrower shall be liable to pay penal
interest as per the guidelines circulated through L&A Circulars from time to time. (As
per present provision, it is to be charged @ 2% on the entire outstanding amount as
per L & A Circular No. 191 dated 26.12.2007.)
f) In case of finance for purchase of plot/ land/ flat/ house, sanctioning authority to
ensure that the title of the same is marketable and free from encumbrances.
g) Sanctioning Authority may permit takeover of Housing Loan accounts from other
financial institutions/ banks. Further, Circle Heads and above may allow takeover of
Housing Loan accounts from other FIs/ banks, on individual merits of the case(s),
subject to the condition that the loan allowed by employer has been for the ‘purpose’
of housing activity only. However, Sanctioning Authority, while taking over the loans
shall ensure that housing loan accounts with other financial institutions/ banks are
running regular with no defaults in payment of interest/ installments.
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27. h) The following types of bank finance may be included under Direct Housing Finance:-
I. Bank finance extended to a person who is already owning a house in the town/
village where he resides for buying/ constructing a second house in the same
town/ village or in other town/ village for the purpose of self occupation.
II. Bank finance extended for purchase of house/ borrower who proposes to let it
out on rental basis on account of his posting outside the Head Quarter or
because he has been provided accommodation by his employer.
III. Bank finance extended to a person who proposes to buy an old house wherein
he is presently residing as a tenant.
IV. Bank finance granted only for purchase of a plot, provided a declaration is
obtained from the borrower that he intends to construct a house on the said
plot, with the help of bank finance or otherwise, within such a period as laid
down by the bank.
V. Supplementary finance:-
a) Bank finance for carrying out alterations/ additions/ repairs to the
house/ flat already financed by the bank.
b) Bank finance to individuals for construction/ acquisition of
accommodation, against pari passu or second charge basis or against
such securities as specified under item 6.
i) Reschedulement in Housing loans may be allowed by an authority one step higher,
maximum upto a total period of 7 years over and above the repayment period as
prescribed in the original sanction by the sanctioning authority. This shall also be
applicable in case of takeover of housing loan accounts provided the accounts are
running regular. However, incase of NPA accounts guidelines as issued by the bank
from time to time shall be applicable.
It has now been decided that for a limited period upto 31.3.2009, the sanctioning
authority, can restructure housing loans at their level, as per guidelines contained in
RBD Advances Circular No. 58/08 sated 10.12.2008.(RBD 63 dt 27.12.08)
27

28. j) Statement of account of prospective borrower(s) minimum for last six months be
obtained. In case of salaried employees, statement of account should be of that
account in which their salary is being credited. In other cases it should be of an count
whose declaration has been made in the income tax returns. This is to facilitate
ascertaining general conduct of the account including other borrowings.
k) Housing loans with multi-location scenario of customer (RBDA/26 dt 26.05.09):-
Frequent complaints are being received from various quarters regarding non-
compliance of guidelines regarding the process of dealing/ sanctioning housing loans
with multi- location scenario of customer e.g. customer working in Delhi wants to buy
housing property at Agra, as contained in RBD Advances Circular No.40 dated
12.09.2008. It is reiterated that the housing loan should be sanctioned at the Hub/
CCPC; which is near the present place of work/ posting/ residence of prospective
borrower. For security verification/ NEC, the sanctioning Hub/ CCPC should,
however, take the help of Hub/ CCPC, which is located near the housing property.
Further, it is advised that the Hub/ CCPC at the place of the housing property must get
the job of security verification/ NEC done promptly, so that there should be no
complaint on this count. Circle Head of the area where housing property is located is,
however, empowered to give administrative clearance for considering sanction of
Housing Loan at Hub/ CCPC falling in his/ her area, on merits.
l) The regularity of income of the borrower over the entire span of loan should be
clearly established before sanction of loan. Latest salary slip, ITR (for the last three
years) etc. be taken. For business class of borrower, repaying capacity be arrived at on
the basis of net income of last three years, as given in ITRs.
m) Bank’s existing customers, preferably with a minimum dealing of six months, be
considered for sanction of Housing Loans. In respect of customers of other banks,
their track records and past dealings, for the last one year, with the existing bank, be
thoroughly verified before making the advance.
n) Post dated cheques of the bank whose statement of account is furnished be obtained
and not of our bank where a shadow account is opened just for getting cheque book.
o) Where the PDCs are nearing exhaustion, the branch should insist for fresh PDCs and
non- submission of the same be treated as violation of terms and conditions.
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29. p) Spot verification of plot/ house to be purchased/ constructed is must and the
incumbent should give his comments on the location/ valuation of the house/ plot
while according sanction.
q) Other sources of income of the applicant should be verified carefully.
r) Take over cases from other banks be entertained only after ensuring that the account
in other bank is running regular and strictly in terms of banks’ extant guidelines for
take-over of a/cs.
s) Identify proof of the applicant, his credentials, stability of employment and residence
of customer, be checked properly.
t) Assessment of other liabilities of the customer be done carefully.
u) Proper selection of borrowers and improvement of diligence level;
v) Immediate contact be made with the borrower on delay/ default of any installment.
w) Contact/ liaison with the employer to put pressure on the borrower.
x) Other KYC norms be meticulously followed.
y) Chain of title deeds should be complete and all the previous original title deeds should
be kept on record.
z) Wherever possible action under Securitization Act and/or u/s 138 of the Negotiable
Instrument Act be taken after complying with the requirement of law.
aa) All guidelines circulated by the bank from time to time in respect of
i. Fair practice code.
ii. Loan documents and
iii. Drawing of credit information reports (CIRs) from ‘Credit Information Bureau
(India) Ltd. (CIBIL) be also followed.
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30. Reiterate ion of the following important guidelines (RBDA/28 dt 29.05.09) keeping in view
the increasing incidence of frauds, we reiterate the following important guidelines for
compliance by the field functionaries:-
i. That the officials of the branch/Hub/CCPC should exercise extra caution to ensure
that they have in their possession detailed plans of the building (duly approved by the
competent authority) to be taken as security, duly confirming that it is constructed as
per admissible laws and rules and that there is no likelihood of its being demolished
at a later date on the demolished at a later date on the grounds that the construction
was unauthorized/illegal;
ii. That the services of only those advocates/ lawyers be taken for verification purposes,
who are of good standing and are experienced persons;
iii. That a clause be put in sanction letters that any third party liability coming on the
bank due to wrong information/declaration given by borrower, will be his/ her
responsibility;
iv. That the directives of High Court of Delhi, as circulated vide RBD Advances Circular
No.40 dated 12.9.2008, inter alia, requiring the bank to obtain the sanctioned Building
Plan, be strictly adhered to.
Prudential guidelines on restructuring of advances by banks- restructuring of Housing
Loans:- (RBDA/58 dt 10/12/08):- it has been observed by RBI that the aforesaid ceiling of 10
years would make many of the housing loans ineligible for special regulatory treatment, since
housing loans are normally granted with much longer repayment period. The matter has been
reviewed by RBI and it has been decided that the aforesaid ceiling of 10 years over the
repayment period of the restricted advances, would not be applicable for restricted housing
loans, subject to compliance with all other laid down guidelines on the subject.
Bank’s decision:-Further, the bank’s board has approved following parameters for
restructuring of housing loan advances
a) The repayment period of restructures housing loan will be fixed depending upon the
repaying capacity of the borrower but should not exceed 30 years or till the borrower
attains the age of 65 years, whichever is earlier. Circle Head may relax the period till
the borrower attains the age of 70 years.
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31. b) The rate of interest would be charged as applicable for total tenor of the loan (i.e.
from the date of original sanction to the terminal date in terms of restructuring
package) prevailing on the date of sanction of the package.
16) Directives of High Court of Delhi- the following directives be compiled with
meticulously (RBD Advances Circular Nos.39 dated 22.11.2006 & 49 dated 24.10.2007, 13
dt 13.02.09)
A. Housing Loan for building construction
I. In cases where the applicant owns a plot/ land and approaches the banks/ FIs
for a credit facility to construct a house, a copy of the sanctioned plan by
competent authority in the name of a person applying for such credit facility
must be obtained by the banks/FIs before sanctioning the home loan.
II. An affidavit-cum-undertaking must be obtained from the person applying for
such credit facility that he shall not violate the sanctioned plan, construction
shall be strictly as per the sanctioned plan and it shall be the sole responsibility
of the executants to obtain completion certificate within three months of
completion of construction, failing which the bank shall have the power and
the authority to recall the entire loan with interest, costs and other usual bank
charges.
III. An architect appointed by the bank must also certify at various stages of
construction of building that the construction of the building is strictly as per
sanctioned plan and shall also certify at a particular point of time that the
completion certificate of the building issued by the competent authority has
been obtained.
B. Housing Loan for purchase of constructed property/ built up property.
i. In cases where the applicant approaches the bank/FIs for a credit facility to
purchase the built up house/ flat, it should be mandatory for him to declare by
way of an affidavit- cum undertaking that the built up property has been
constructed as per the sanctioned plan and/ or building bye-laws and as far as
possible has a completion certificate also.
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32. ii. An architect appointed by the bank must also certify before disbursement of
the loan that the built up property is strictly as per sanctioned plan and/or
building bye-laws.
C. Unauthorized colonies- no loan should be given in respect of those properties which
fall in the category of unauthorized colonies unless and until they have been
regularized and development and other charges paid.
D. Commercial property- no loan should be given in respect of properties meant for
residential use but which the applicant intends to use for commercial purposes and
declares so while applying for loan.
E. Building plan (LA 65 dt 27.05.09):-
i. A clause be put in the sanction letter that any third party liability coming on
the bank due to wrong information/ detail given by the borrower, will be his/
her responsibility;
ii. Building plan duly approved by competent authority be made a pre- condition
for considering housing loans.
It has been decided that in cases where built up IPs are proposed to be accepted as
primary/ collateral security including mortgage loan/ loan against tangible security/
lease rentals, etc. besides adhering to the laid down guidelines, the following
guidelines be meticulously followed with immediate effect:
a) An affidavit-cum-undertaking be obtained from the proposed borrower
applying for such credit facility that the built up property has been constructed
as per sanctioned plan, and/ or building bye-laws;
b) An architect/ valuer appointed by the bank shall also certify while giving
valuation of proposed IP that the built up property is strictly as per sanctioned
plan and/or building bye-laws;
c) In case deviations are reported in the construction, by an architect/ valuer
appointed by the bank and/ or noticed by incumbent incharge/ dealing official,
in light of provisions of the building laws of a particular area/state and if the
violation is compoundable, then payment of compounding, merits in the case
32

33. and value of the account on case to case basis. However, in case of deviation
which is not compoundable, then the concerned architect and the sanctioning
authority has to examine each case as there may be demolition to the extent of
extra construction, thus such cases should be avoided for bank finance unless
there are compelling merits in the account. Value of IP financed in such cases
should at least be 250% of the loan amount (LA 126 dt 03.10.09).
7) Guidelines for entrusting work to architects/ advocates for prevention of frauds in the
housing loan sector- approving of advocates/ architects (RBD Advances Circular No.22 dated
27.4.2007)
I. Guidelines for valuation of property under Housing Finance Sector:-
a) Guidelines for valuation of properties and empanelment of valuers, as
contained in L&A Circular No. 12/2007 dated 5.2.2007 followed by other
relevant circulars on the subject, be made applicable mutatis mutandis to all
housing loan borrowal accounts, irrespective of any loan limit/ valuation of
house/ flat/ plot mortgaged to the bank.
b) In addition to above, the valuer shall also be required to perform the following
work in cases of construction of houses/ flats:-
i. Check the estimate submitted by the applicant keeping in view location
of the project and rates prevailing in the market for construction
material and confirm genuineness;
ii. Verify the compliance of various requirements for implementation of
the project such as approval of map, permission of an authority
required to implement the project and give necessary report/
confirmation pertaining thereto;
iii. Give a certificate at various stages of construction (but necessarily at
initial stage. Plinth level and on completion) that the construction is
strictly as per the sanctioned plan.
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34. c) Fee structure for valuation of property, as prescribed vide L&A Circular No.
12/2007 dated 5.2.2007 followed by other relevant circulars, if any, shall
remain unchanged. However, for valuation of property less than Rs.20 lacs,
the fee payable shall be maximum Rs.1500/-
II. Guidelines for Housing Loans processing related work to be performed by advocates/
appointment of advocates:- Circle offices will approve the advocates and shortlist the
panel of 4-5 advocates exclusively for the Housing Loans processing related work.
The advocates shall be required to do the following job:
i. Verification of the Income Tax return from the Income Tax Department.
Verification of salary certificate from the employer’s office;
ii. Compliance of guidelines with regard to verification of genuineness of the title
deeds and obtention of search report in respect of non- encumbrance of the
property as circulated vide Law Division Circular No.5/2003 and 3/2004;
iii. Verification having field the deed of apartment in case the property is sold by
way of apartments by the promoter and its contents. Verification of the
certified copy of the deed of apartment with the original, kept with the
promoter. Verification of the endorsement on the certified copy of deed of
apartment and the bye laws of the association of apartment owners.
Verification of completion of the apartment, name of the occupant of the flat
and capacity under which he/she is residing in the flat;
iv. If the sale deed is being executed by power of attorney holder, verification
form the principal having executed the PA and principal is alive. Verification
of identity of power of attorney holder; original power of attorney must be a
part of the chain of title deeds;
v. Verification of execution of tripartite agreement by private builder/ authority/
society.
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35. Appointment of advocates-
Eligibility (for Housing Loan processing related work):- advocate must be in the approved
list of the Circle Office, having practice of not less than five years.
Fee structure- the fee to be charged from the borrower and paid to the advocate for the
aforesaid assigned work is 0.125% of the loan amount with minimum of Rs. 1000/- and
maximum of Rs. 3000/-.
III. An agreement on the prescribed format, as prescribed vide L& A Circular No.12/2007
dated 5.2.2007, be got executed by the valuer. The advocate also to give consent/
undertaking to the effect that the bank will be free to take appropriate legal action
including filing/ lodging complaint to the professional body, if there is any
misconduct on the part of the advocate or information submitted by advocate to the
bank is found incorrect/ false, without prejudice to bank’s right to delist/ depanel the
advocate from its panel.
IV. All Circle Offices are advised to prepare the list of professionals and circulate the
same to the branches/ hubs working under the respective jurisdiction for utilization of
their services for performance of housing loan processing related work, as specified
above. The professionals be given a time period of 3 working days to complete the
assigned job and submit the report in each case. The applicant borrower found
otherwise eligible for sanction of loan be given in principal sanction only after he/ she
deposits the charges/ fee payable to professionals, along with the undertaking that
these charges/fee will not be refunded in case any document submitted by his/ her is
found deficient in any manner. Upfront fee/ documentation charges will be levied as
per extant guidelines.
V. In all cases, branches to adhere to KYC norms, other extant guidelines and properly
verify the identity and credentials of each of the borrower, guarantor, builder, seller,
officials of Group Housing Society etc. and verify the documents to their satisfaction,
before disbursement of loan.
18) Criteria for approval of private builders and their projects (RBD Advances Circular
No.33 dated 28.5.2007).
19) Risk weight on Housing finance.
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36. 20) Checklist/ Documentation.
21) Classification of Housing finance under priority sector direct finance:-
i. Housing loans:- Loans up to Rs. 20 lakhs to individuals for purchase/ construction of
dwelling unit per family, (excluding loans granted by banks to their own employees)
and loans given for repairs to the damaged dwelling units of families up to Rs. 1 lakh
in rural and semi-urban areas and up to Rs. 2 lakhs in urban and metropolitan areas.
ii. Indirect finance:-
a) Assistance given to any governmental agency for construction of houses,
exclusively for the benefit of SC/STs, where the loan component does not exceed
Rs.5 lacs per unit and all advances for slum clearance and rehabilitation of slum
dwellers.
b) Assistance given to a non-governmental agency approved by the National
Housing Bank (NHB) for the purpose of refinance will also be eligible for all the
categories of borrowers as applicable to governmental agencies as priority sector
advances.
c) Investment in bonds issued by NHB/ HUDCO on or after April 1,2007, shall not
be eligible for classification under priority sector lending.
23) Indirect Housing finance: general:- in terms of RBI guidelines, bank should ensure that
their indirect housing finance is channeled by way of term loans to housing finance
institutions, housing boards, other public housing agencies, etc., primarily for augmenting the
supply of services land and constructed units, it should also be ensured that the supply of
plots/ houses is time bound and public agencies do not utilize the bank loans merely for
acquisition of land. Similarly served plots should be sold by these agencies to co-operative
societies, professional developers and individuals with a stipulation that the houses should be
constructed thereon within a reasonable time, not exceeding three years. For this purpose, the
banks may take advantage of various guidelines issued by NHB for augmenting the supply of
serviced land and constructed units.
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37. B. Lending to Housing intermediary agencies
a) Lending to housing finance institutions:-
I. Banks may grant term loans to housing finance institutions taking in to account (long
term) debt equity ratio, track record, recovery performance and other relevant factors.
II. In terms of NHB guidelines, housing finance companies’ total borrowings, whether
by way of deposits, issue of debentures/ bonds, loans and advances from banks or
from financial institutions but including any loans obtained from NHB, should not
exceed 16 times of their net owned funds (i.e. paid-up capital and free reserves less
accumulated balance of loss, deferred revenue expenditure and intangible assets).
III. In respect of housing finance companies, which are eligible to draw refinance from
NHB, the quantum of term loan to be sanctioned to them will not be linked to net
owned funds as NHB has already prescribed the above referred ceiling on total
borrowings of housing finance companies. A list of housing finance companies
approved by NHB for the purpose of refinance may be obtained directly from NHB or
downloaded from www.nhb.org.in
b) Lending to housing boards and other agencies:- the bank may extend term loans to
state level Housing Boards and other public agencies. While extending the loans, bank
must not only keep in view the past performance of these agencies in the matter of
recovery from the beneficiaries but they should also stipulate that the Board will
ensure prompt and regular recovery of loan installments from the beneficiaries.
c) Financing of land acquisition:- the bank may extend finance to public agencies and
not private builders for acquisition and development of land, provided it is a part of
the complete project including development of infrastructure such as water systems,
drainage, roads, provision of electricity, etc. such credit may be extended by way of
term loans. The project should be completed as early as possible and, in any case,
within three years, so as to ensure quick re-cycling of bank funds for optimum results.
If the project covers construction of houses, credit extended thereof in respect of
individual beneficiaries should be on the same terms and conditions as stipulated for
direct finance.
37

38. d) Terms and conditions for lending to Housing intermediary agencies:-
I. In order to enhance the flow of resources to housing sector, term loans may be
granted by banks to housing intermediary agencies against the direct loan
sanctioned/ proposed to be sanctioned by the latter, irrespective of the per
borrower size of the loan extended by these agencies and such term loans would
be reckoned for the purpose of achievement of their housing finance allocation.
II. Banks can grant term loans to housing intermediary agencies against the direct
loans sanctioned/ proposed to be sanctioned by them to Non-Resident Indians
also. However, banks should ensure that housing finance intermediary agencies
being financed by them are authorized by RBI to grant housing loans to NRI as
all housing finance intermediaries are not authorized by RBI to provide housing
finance to NRIs. Further, such finance granted by banks to housing finance
intermediary agencies against the latters’ on –lending to NRIs will not be treated
as housing finance for the purpose of scheme of yearly allocation of housing
finance applicable to banks.
III. The rate of interest on term loans extended by bank to housing finance
intermediary agencies for on lending to Indian residents through L & A Circular
from time to time.
C. Term loans to private builders:- In view of the important role played by professional
builders as providers of construction services in the housing field, especially where land is
acquired and developed by State Housing Boards and other public agencies, bank may extend
credit to private builders on commercial terms by way of loans linked to each specific project.
However, the banks are not permitted to extend fund based or non-fund based facilities to
private builders for acquisition of land even as a part of housing project. The period of credit
for loans extended by bank to private builders may be decided by banks themselves based on
their commercial judgement subject to usual safeguards and after obtaining such security as
banks may deem appropriate. Such credit may be extended to builders of repute, employing
professionally qualified personnel. It should be ensured, through close monitoring, that no
part of such funds is used for any speculation in land. Care should be taken to see that prices
charged from the ultimate beneficiaries do not include any speculative element, that is, prices
should be based only on the documented price of land, the actual cost of construction and a
reasonable profit margin. Bank may adhere to the National Building Code (NBC) formulated
38

39. by the Bureau of Indian Standards (BIS) in view of the important of safety of buildings
especially against natural disasters.
24) Construction activities eligible for bank credit as finance:- The following types of bank
credit will be eligible for being treated as housing finance:-
i. Loans to individuals for purchase/ construction of dwelling unit per family and loans
given for repairs to the damaged dwelling units of families.
ii. Finance provided for construction of residential houses to be constructed by public
housing agencies like HUDCO, Housing Boards, local bodies, individuals,
cooperative societies, employers, priority being accorded for financing construction of
houses meant for economically weaker sections, low income group and middle
income group.
iii. Finance for construction of educational, health, social, cultural or other institutions/
centres, which are part of a housing project and which are necessary for the
development of settlements or townships.
iv. Finance for shopping complexes, 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 and;
v. Finance for construction meant for improving the conditions in slum areas for which
credit may be extended directly to the slum-dwellers on the guarantee of the
government or indirectly to them through the state governments.
vi. Bank credit given for slum improvement schemes to be implemented by Slum
Clearance Boards and other public agencies.
vii. Finance provided to-
a. The bodies constituted for undertaking repairs to houses, and
b. Owners of building/ house/ flat, whether occupied by themselves or by tenants, to
meet the need based requirements for their repairs/ additions, after satisfying
themselves regarding the estimated cost (for which requisite certificate should be
obtained from an engineer/ architect, wherever necessary) and obtaining such
security as deemed appropriate;
39

40. c. Housing finance provided by banks for which refinance is availed of from
National Housing Bank.
d. Investment in the guarantee/ non-guaranteed bonds and debentures of
NHB/HUDCO in the primary market, provided investment in non- guaranteed
bonds is made only if guaranteed bonds are not available.
25. Construction activities not eligible for bank credit:-
I. Banks should not grant finance for construction of buildings meant purely for
government/ semi-government offices, including Municipal and Panchayat Offices.
However, banks may grant loans for activities, which will be refinanced by
institutions like NABARD.
II. Projects undertaken by public sector entities which are not corporate bodies (i.e.
public sector undertakings which are not registered under Companies Act or which
are not corporations established under the relevant statute) may not be financed by
banks. Even in respect of projects undertaken by corporate bodies, as defined above,
banks should satisfy themselves that the project is run on commercial lines and that
bank finance is not in lieu of or to substitute budgetary resources envisaged for the
project. The loan could, however, supplement budgetary resources if such
supplementing was contemplate in the project design. Thus in the case of a housing
project, where the project is run on commercial lines, and the government is interested
in promoting the project either for the benefit of the weaker sections of the society or
otherwise, and a part of the project cost is met by the government through subsidies
made available and/or contributions to the capital of the institutions taking up the
project, the bank finance should be restricted to an amount arrived at after reducing
from the total project cost the amount of subsidy/ capital contribution receivable from
the government and any other resources proposed to be made available by the
government.
III. Banks had, in the past, sanctioned term loans to corporations set up by government
like State Police Housing Corporation, for construction of residential quarters for
allotment to employees where the loans were envisaged to be repaid out of budgetary
allocations. As these projects cannot be considered to be run on commercial lines, it
would be in order for banks to grant loans to such projects.
40

41. 26) General:- While financing housing projects, if any need arises for obtaining a particular
type of agreement, the same may be got approved by legal retainer locally available in
consultation with respective Circle Head, and if necessary, by Law Department, HO New
Delhi.
27) Tie up with PNB Housing Finance Ltd:- (RBDA/ 61 dt 26/12/08, 7 dt 19.01.09):- To
avoid competition between PNB and PNB Housing Finance Ltd. (PNBHFL), the bank’s
Board of Directors, in its meeting held on 16.12.2008, passed the following resolution:
“resolved that PNB to enter into a tie up arrangement with PNB Housing Finance Ltd.
Whereby Housing Loans upto Rs.30 lacs sourced by the branches of the bank will be passed
to PNB Housing Finance for sanction and disbursement. This tie up between PNB and PNB
Housing Finance Ltd. Shall be applicable only on the centres where the PNB Housing
Finance Ltd. is present. On the remaining centres and for housing loans above Rs.30 lacs, the
existing arrangement shall continue.” As per understanding reached between the two
institutions, the branches at the centres where PNBHFL is present, will be passing on the
housing loans upto Rs. 30 lacs, sourced by them, to the respective designate local branches of
PNBHFL only. List containing addresses of PNBHFL is available at Annexure I of the
Circular. Role of PNB branches as well as our Circle Offices for making this tie up success is
also contained in Annexure ii of the circular.
Clarification (RBDA 7 dt 19.01.09):- In this context, it is clarified that additional housing
loans for additions/ repairs/ renovations etc. will, however, continue to be considered by our
bank under ‘Hub & Spoke Model’ in cases where plot/ property is already mortgaged with
the bank.
Consideration of Housing Loan proposals by our branches through Hub & Spoke Model:-
(RBDA/15 dt 19.02.09). In terms of RBD Advances Circular No.61 dated 26.12.2008, it is,
inter alia, stipulated that the branches at centres where PNB Housing Finance Ltd. (PNBHFL)
is present, would pass on the housing loans upto Rs.30 lacs, sourced by them, to the
respective designate local branches of PNBHFL only, for sanction and disbursement. Further,
in terms of RBD Advances Circular No.10 dated 28.01.2009, it was advised that advances
under Special Housing Loan Scheme can be considered by all our branches (including
branches at centres where PNB Housing Finance Ltd. Is present) under bank’s ‘Hub & Spoke
Model’. Based on the references received from the field, it has now been decided that
advances (including advances upto Rs.30 lacs) under bank’s regular Housing Finance
41

42. Scheme for public can also be considered by our branches through ‘Hub & Spoke Model’ at
all centres (including centres where PNBHFL is present) for the period upto 30.6.2009.
Accordingly, the leads generated at the branches for advances under the bank’s regular
Housing Finance Scheme can now be forwarded to respective Hub/CCPC for consideration.
Consideration of Housing Loan proposals by our branches through Hub & Spoke Model:-
(RBD/35 dt 09.07.09):- Attention of all the concerned is invited towards RBD Adv.Cir.No.15
dated 19.2.2009 advising that advances (including advances up to Rs.30 lac) under bank’s
regular Housing Finance Scheme for public can also be considered by our branches through
Hub & Spoke Model at all centres (including centres where PNB HFL is present) for the
period up to 30.6.2009. it has now been decided that housing finance (irrespective of any
amount) may continue to be extended by our branches at all centres (including centres where
PNB HFL is present) under bank’s ‘Hub & Spoke Model/CCPC’
Takeover of Housing Loans from PNBHL not to be done (RBDA/66 dt 31.12.08):- It has
been decided that henceforth housing loan of PNB Housing Finance Ltd. will not be taken
over by our branches. All concerned are advised to note the above guidelines for meticulous
compliance.
Takeover of housing loans from PNB Housing Finance Ltd to be done: (RBDA/25 dt
06.05.09):- Based on the feedback received from the field, the matter has been reviewed and
it has been decided to permit take over of quality housing loans of PNB Housing Finance Ltd.
as per extant guidelines.
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43. T1 PNB special Housing Loan Scheme for new accounts under fixed option with re-set
clause of five years (valid from 01.01.2009 to 30.06.2009):- (RBDA/64 dt 31.12.08, 8 dt
22.01.09, 14 dt 18.02.09):- A special housing loan scheme covering the following parameters
has been approved by the bank:-
Parameter Details
Purpose The loan under the captioned scheme will be made
available for all housing needs of borrowers e.g.
construction of house or purchase of house/ flat and for
carrying out repairs/ renovation/ additions/ alterations/
furnishing to the house/ flat. Cost of furnishing may,
however, be included in the project cost maximum upto
10% of the amount of loan permissible for the purpose of
repairs/ renovations/ additions/ alterations.
Branches (RBDA 10 dt 28.01.09) Can be considered by all the branches (incl. branches at
centres where PNB Housing Finance Ltd. Is present)
under bank’s ‘Hub & Spoke Model’. Accordingly, the
leads generated at the branches for advances under the
above scheme can be forwarded to respective
Hub/CCPC for consideration
Min. amount of loan Rs.1.00 lac
Max. amount of loan Rs.20 lacs
Margin For loans with limit upto Rs.5 lacs -10%
For loans with limit above Rs.5 lacs & upto Rs.20 lacs
-15%
Min. entry age 18 years
Max. entry age 57 years
Min. repayment tenor/ term 03 years
Max. repayment tenor/ term 20 years
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44. Max. repayment age 60 years (no power at any level to fix the repayment
period beyond the borrower’s age of 60 years)
Rate of interest (under fixed For loans with limit upto Rs. 5 lacs -8.50% p.a.
option)
For loans with limit above Rs. 5 lacs & upto Rs. 20 lacs
-9.25% p.a.
These rates are fixed for first five years. Re-set of
interest rates will uniformly be on 01.07.2014 and
thereafter every five years. The applicable interest rate
will be 150 bps higher than the applicable interest rate
for five years’ deposit or peak interest rate of deposit,
whichever is higher prevailing at that time.
Upfront/ Processing fee As applicable to bank’s regular Housing Finance
Scheme (can be waived fully by sanctioning authority)
Documentation charges As applicable to bank’s regular Housing Finance i.e.
Rs.1350/- (excl. service tax)(can be waived fully by
sanctioning authority)
Life insurance Life insurance cover to be provided to borrower at
bank’s cost, as per tie up arrangement entered into
between the bank and LIC of India under Group
Mortgage Redemption Insurance Scheme (GMRIS), as
per details set out in Annexure i. the insurance cost is on
one time single premium basis. The premium to be
credited to a/c no.0153002100568733 “LIC Insurance
Premium- PNB Special Housing Scheme” maintained in
CBS system at BO Sansad Marg, New Delhi.
Co-borrower To be permitted, only in case co-borrower agrees to go
in for life insurance cover from LIC of India at his/her
own cost under the aforesaid GMRIS. Bank will bear the
cost of life insurance cover of only youngest person in
joint accounts.
Enhancement/ additional limit Not permitted.
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45. Age proof Municipal Birth Certificate, School Leaving Certificate,
Baptism Certificate, LIC Policy where age is admitted.
Declaration of good health (DGH) Required in all cases (to be obtained in duplicate on
format as per Annexure ii). One copy to be sent on the
same day to controlling LIC branch (i.e. LIC of India,
Divisional Office1, Pension & Group Schemes Unit,
Jeevan Prakash, 6th Floor, 25- Kasthurba Gandhi Marg,
New Delhi-110001 Tel No. 011-23354037, Fax
23350832 Contact Person: Shri Sunil Kumar: Mobile
No. 9718282823) e-mail Id bo_g103@licindia.com and
another copy be kept with Loan documents at the
disbursing branch.
Pre-payment charges NIL
Take over/ swapping of loan Not allowed.
documentation As per extant guidelines. However, Housing Loan
Agreement under the captioned Scheme will be
obtained/ got executed, as per the revised format
available as per Annexure iii.
Validity of the scheme 01.01.2009 to 30.06.2009.it should be ensured that all
the cases including those requiring medical examination
are sanctioned and disbursed before 30.06.2009.
MIS Information as per Annexure iv to be sent to the
aforesaid controlling office of LIC on weekly basis on
every Friday. In case of NIL information, MIS need not
be sent. (failure to observe this time schedule will invite
penal action).
Other terms & conditions/ guidelines of the scheme for providing housing loans to public,
as contained in RBD Advances Circular No.40 dated 12.09.2008 followed by various
45

46. circulars on the subject, shall remain unchanged and are applicable to the captioned
scheme as well.
The captioned scheme is for new accounts sanctioned and availed from 01.01.2009 to
30.06.2009 and will run concurrently with the existing regular Housing Loan Schemes.
Hence, any account not fulfilling to the norms of the captioned scheme can be covered in
bank’s existing Housing Loan Schemes, on the terms and conditions set out therein. The
sanctioning authority will ensure due diligence for sanction of loan.
The detailed terms of the aforesaid Insurance Plan of LIC along with premium rates per
Rs.10000/- of loan amount (separate for rate of interest 8.50% & 9.25%) are available as
per Annexure V & VI of the circular.
T2 Guidelines of medical examination:- (RBDA/8 dt 22.01.09):- based on clarifications
received from Life Insurance Corporation of India (LIC), guidelines under the head
‘medical examination’ have been revised as under:-
Loan amount/ sum assured Upto age 55 years Above age 55 years to 57 years
Upto Rs.5 lacs Medical examination not Medical examination not
required. Only required. Only DGH be
Declaration of Good obtained along with
Health (DGH) be information as per Short
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47. obtained. Medical Questionnaire (SMQ)
proforma attached.
Above Rs.5 lacs & upto -do- Medical examination will be
Rs.10 lacs mandatory, before sanction &
disbursement of loan as per
LIC rules. This medical
examination includes full
medical report from LIC
examiner and FBS & ECG
from any qualified doctor.
Above Rs. 10 lacs & upto -do- Medical examination will be
Rs. 20 lacs mandatory, before sanction &
disbursement of loan as per
LIC rules. This medical
examination includes full
medical report from LIC
examiner and FBS, TMT &
Lipid Profile from any
qualified doctor.
In case applicant is not found medically fit, as per the rules of LIC, he/ she will not be
eligible for housing loan under the scheme.
Functional guidelines regarding opening of account with new interest rate code:- (RBDA/14
dt 18.02.09):- Functional guidelines regarding opening of account with new “interest rate
code”. Under the above scheme in the system and debit of Insurance premium were also
advised in terms of IT Division Circular No. ITD/CBS/03/2009 dated 09.01.2009.
In terms of the said circular of IT Division, it is, inter alia, advised as under:- That while
opening the account under scheme code ‘TLPHL’ one of the following two interest codes
(according to sanctioned limit of housing loan) will be assigned in “int. rate code’ field in
general details:
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48. 1) SHR05- loan with sanctioned limit upto Rs.5.00 lacs (8.50%);
2) SHR20- loan with sanctioned limit above Rs.5 lac & upto Rs.20 lacs (9.25%)
That the new mode of Advance “DIHRS’ (DIRECT ADV. UNDER PNB SPL.
HOUSING RATE SCHEME)” will be assigned in the ‘v’ details of the a/c,
besides other mandatory codes.
It has been noticed that the above guidelines regarding assignment of new
interest rate codes and the new mode of advance code, as above, are not being
followed meticulously, leading to generation of wrong MIS reports/ opening
of accounts with wrong interest codes.
Since interest rates under the above scheme are subject to reset on 01.07.2014
and thereafter every five years, opening of accounts under the captioned
scheme with wrong interest codes will create avoidable problems at later
stage.
EARNEST MONEY DEPOSIT SCHEME (RBD 8/02, 17/04, 25/04, 42 DT
7/12/06)
PURPOSE: For meeting earnest money deposit (EMD) requirements to apply for allotment
of plot/ flat/ house under the schemes floated by State Housing Boards (SHB)/ Urban
Development Authorities (UDA)
ELIGIBILITY: Individuals/ joint owners, where SHB/ UDA undertakes to give Refund
order/ allotment letter/ Forfeited amount in full to our bank subject to eligibility of the
applicant for the proposed loan and future requirement for housing loan under our existing
Housing Loan Scheme.
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49. AMOUNT: 90% of EMD in case of House/ flat/ plot/ land, subject to maximum of Rs.2.00
lacs (25/04)
ROI: BPLR minus 1.75%. Further, ZM & above may reduce it further maximum by 1% on
merits of specific proposals of State Housing Boards/ urban development authorities etc.
(Power for reduction not specified vide RBD 32/08).
REPAYMENT:
I. Unsuccessful applicants- by refund order.
II. Successful applicants,
a. Eligible and interested for housing loan- by housing loan,
b. For others- through bullet payment.
GUARANTEE: Clause deleted vide RBD 5/05 dt 12/1/05
DISBURSEMENT: Direct to SHB/ UDA along with application on behalf of borrowers.
LOANING POWERS: Incumbents of authorized branches (station wise) as per orders of
Circle Head after entering into MOU with SHB/ UDA.
DOCUMENTS:
i. Application- 1054, with suitable amendments,
ii. Agreement – Annexure-24,
iii. Guarantee deed- 58,
iv. Consent letter for refund- annexure-25
v. UPFRONT FEE/ REMITTING CHARGES.
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50. vi. MULTIPLE FINANCING: (RBDA/42 dt 7/12/06):- Recently, cases of multiple
financing under the scheme have come to notice, thereby permitting finance by the
branches for more than one application to individual applicant under the same
Housing scheme of State Housing Board/ Development Authority. The issue has been
examined at RBI’s level and it is felt that it is not prudent on the part of any bank to
sanction multiple loans to an individual for applying for the same plot/ flat. RBI has,
therefore, advised that necessary care be exercised in respect of such matters in future.
OD FACILITY TO EXISTING HOUSING LOAN BORROWERS FOR
PERSONAL NEEDS (RBD 19 dt 8/8/05, 10/07, 45/07, 9/08, 47/08, 43/09)
Offer of the scheme: existing borrowers fulfilling the criteria be offered to avail the facility as
per their eligibility on execution of documents.
ELIGIBILITY: All existing housing loan borrowers having satisfactory repayment track
record of minimum of past 24 months. All terms & conditions of sanction should have been
fulfilled and no IR irregularity should be outstanding which has been identified as serious in
nature.
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51. NATURE: For personal needs in the shape of OD limit.
AMOUNT: Minimum Rs 50000/- & maximum Rs 5.00 lacs. Subject to additional OD limit
proposed and current outstanding in existing housing loan account should be maximum 75%
is the current realizable value of the house so as to maintain a minimum margin of 25%.
(RBD 45/07). It is clarified that the current realizable value of the housing property is to be
taken into account, for the above purpose--- RBD 9 dt 03.03.08.
Continuation of OD limit after adjustment of housing loan:- (RBD/ 47 dt 23.09.08):-
References have been received from the field enquiring as to whether the said overdraft
facility can be continued/ renewed even after adjustment of Housing loan a/c in full. In this
context, it is clarified that after the Housing loan is paid fully, the overdraft facility can be
continued/ renewed, provided the sanctioning authority us satisfied about the repaying
capacity of the borrower and the value of security.
RATE OF INTEREST: BPLR minus 1%.
SECURITY: Extension of charge on existing IP mortgaged.
REVIEW: The facility be reviewed annually. OD be set up in such a manner that take home
salary should not be less than 40%of net salary after servicing of interest in case of salaried
borrowers. In others cases, income should be sufficient to service the interest. Income of co-
borrowers/ joint borrower etc taken for the purpose of eligibility at the time of sanction of
housing loan should also be considered for this purpose.
Upfront fee/ Documentation charges.
LOANING POWERS: Small- NIL; MB- 4 lacs; LB- 5 lacs; CM & above- 5 lacs. The powers
can be exercised even if existing facilities have been sanctioned by a higher authority.
Documentation:
i. Offer letter- Annexure- I duly acknowledged and accepted on the “terms and
conditions of the sanction;
ii. OD agreement- Annexure- ii;
iii. Mortgage deed- Annexure iii;
iv. EM for enhanced amount of OD.
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52. Other guidelines: In case interest is not serviced within 7 days of the close of the close of the
month, the borrower shall be liable to pay penal interest @ of 2% over and above the
applicable rate on the amount of default and for the period of default. An undertaking to this
effect be obtained from the borrower. Borrower shall be allowed to route his surplus funds
from the OD account upto the extent of the limit.
OD to borrowers where construction has not yet completed” (RBDA/43 dt 21.08.09):-
Reference has been received seeking clarification whether the above- said facility can be
extended to the existing housing loan borrower who has availed the housing loan for purchase
of plot but construction thereon has not yet been commenced/ completed. It is clarified that
overdraft facility for personal use should not be sanctioned to the borrowers, who have
availed loan for purchase of plot, construction on which is yet to be completed.
Marketing efforts: (RBDA/ 10 dt 13/2/07) Under “overdraft facility to existing housing loan
borrowers”, branches will, however, make the offer in writing to all the existing housing loan
borrowers, who fulfill the relevant criteria of the said offer, that an overdraft limit has been
set up in his/ her/ their favour as per eligibility, which can be availed after execution of
documents.
PNB FLEXIBLE HOUSING LOAN
(RBD 33/04 DT 18/10/04, 45/07)
OBJECTIVE: The objective of the scheme is to offer attractive variant to the customer in
which he will deposit his savings and withdraw it at his choice upto the extent of OD limit.
All terms and conditions of housing loan scheme for public, except as detailed hereunder
shall be complied with.
ELIGIBILITY: Customers under 50 year of age are eligible. The existing customers are also
permitted for changeover if eligible for the variant and pay the upfront fee and documentation
52

53. charges. Earlier loan be adjusted through the proceeds of this loan & present outstanding be
taken into consideration for conversion of loan under this variant.
PURPOSE: Purposes specified under Housing Loan scheme for public except for purchase of
land/ plot. However, when the borrower is having undertaken construction, loan be allowed
on his request.
MARGIN: 25% (RBD 45 dt 11.10.07).
EXTENT OF LOAN: 20% increase in original total limit be allowed for personal needs after
5 years on written request of the borrower subject to his repaying capacity and good
repayment track record. The increase will be subject to market value of the property and
margin of 25% shall be maintained at all levels. The increase can be allowed in the form of
TL or OD facility as per the choice of the borrower in writing but the OD component in
totality should not exceed 50% of the total limit.
NATURE OF FACILITY: TL- 80%; OD- 20%. Two separate accounts be opened for both
the facilities, suitable EMI be prescribed and EMI cheques be obtained. If 20% increase after
5 years is allowed in the shape of Term Loan, 2nd TL account be opened and separate EMI
cheques be obtained. Similarly EMI cheques covering interest component of this limit be
obtained. Separate documents be obtained for enhanced portion. Maintenance of separate
account for personal needs is also necessary to ensure that interest component on Housing
Loans is calculated easily for the purpose of issuance of Interest Certificate required by the
borrower for claiming the benefit available under Income Tax Provisions.
Further on attaining the age of 55 years the OD facility shall be allowed on monthly reducing
DP basis with reduction commences from the month following the month when the customer
attains the age of 55 years so as to ensure that whole of the OD limit including TL is adjusted
by the age of 65 years.
Other conditions:
I. Over the period of the loan, the OD limit will be enhanced on regular basis at yearly
intervals.
II. The enhancement in OD be allowed upto the reduction of term loan.
53