Real estate and housing analyst Suraj H. Asrani feels the latest RBI instruction to banks on housing loan disbursal may not help the construction sector

The recent decision of the RBI asking banks to desist from upfront disbursal of housing loans to developers under the 20:80 or the 25:75 scheme comes as yet another step to stifle the real estate industry.

In an economy facing a slowdown and uncertainty, developers confronting challenges on liquidity have at various times marketed innovative payment schemes to attract customers and boost sales. One such example is the 20:80 scheme, where the customer pays an initial booking amount of 20 per cent, and banks then advance the balance 80 per cent to the developer, which is also known as Advance Disbursal Facility. The developer services the interest for the amount until the possession of the property is handed over to the customer.

This is a win-win situation for all parties concerned. The customer gets the advantage of a substantial discount for an upfront payment; the developers acquires funds upfront, enabling them to plan their project cash flows with certainty, and no risk of customers defaulting on payments; and banks deploy funds at one go without having to micro-monitor construction schedules and progress.

Playing it safe

A point to note here is that the banks are very clear and careful on the category of developers that they extend this Advance Disbursal Facility to. The track record of the developer, past performance and credit history are some of the factors that are appraised before the banks authorise and clear an ADF.

In order to foster growth and ease liquidity through such innovative trade schemes, the RBI should take a more holistic view of the situation. Customer safeguards and issues such as timely completion are non-negotiable items, and there are various ways that these can be brought under the ambit of a suitable framework. Additional precautions/safety triggers could be built into these schemes so that these issues can be satisfactorily addressed. A complete ban is irrational and is not conducive to the industry which ironically provides the most fundamental requirement of society.