Home loan borrowers from State Bank of India (SBI) will now be able to avail of a full refund of the principal amount if the builder fails to handover an occupancy certificate (OC) within a stipulated time.
India's largest bank on Wednesday unveiled a product called Residential Builder Finance with Buyer Gurantee (RBBG) wherein borrowers buying apartments in projects where SBI is the sole lender will get this guarantee.
"This scheme will serve the purpose of boosting the stressed real estate sector and will give confidence to buyers as well," said Rajnish Kumar, chairman, SBI.
Kumar added that these loans to home loan buyers will be at the same rate as its existing home loans and borrowers can seek refund if builder fails to meet the deadline under the Real Estate (Regulation and Development) Act. All builders have to get their projects registered under RERA and provide a timeline for its completion.
Interestingly, SBI was never too big on builder loans. According to an SBI official who did not wish to be named, the total exposure of residential and commercial real estate loans by SBI would be less than ₹5,000 crore. That is about 0.2% of its ₹22.48 trillion loanbook as of the September quarter.
The Reserve Bank of India (RBI) has always seen commercial real estate exposure by banks as a riskier affair compared to other segments. It has therefore mandated banks to set aside more money as standard asset provisions between 0.75-1% for these loans. Typically, banks have to set aside 0.4% of a loan as provisions for most other loans.
Moreover, the ongoing economic slowdown has hit the real estate sector hard, with demand for new housing units slumping in the second half of 2019. According to data from Anarock Property Consultants Ltd, sales in top six cities, including Mumbai Metropolitan Region, National Capital Region and Bengaluru, fell 22% in the second half compared to the first six months of 2019. However, sales in 2019 saw an increase of 5% year-on-year to 261,370 units in the cities cited above.
SBI said on Wednesday that its scheme will focus on affordable housing segment with home price of upto ₹2.5 crore in seven Indian geographies initially and then move to 10 cities. It has already tied up with Sunteck Realty Ltd and plans to expand it to other builders fulfilling the prescribed due diligence criteria by the bank can for loans between ₹50 crore to ₹400 crore.
"This product has huge implication on real estate industry and homebuyers. It will improve the velocity of sales," said Kumar.
To push credit growth, SBI, last month, cut its lending rates linked to the central bank’s repo rate by 25 basis points (bps) to 7.8%, lowering borrowing costs for small businesses and homebuyers. Earlier in December, SBI had announced a 10 bps reduction in its one-year marginal cost of funds-based lending rate (MCLR) to 7.9%. It was the eighth consecutive cut in MCLR in FY20. Banks used to follow MCLR norms for setting rates for retail loans before the advent of external benchmarking.
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