The Reserve Bank of India (RBI) on April 01, 2025, issued the Master Circular – Housing Finance with reference to the Master Circular DOR.CRE.REC.No.07/08.12.001/2024-25 dated April 02, 2024 consolidating the instructions/guidelines issued to banks till April 01, 2024 relating to Housing Finance.
The revised Master Circular is updated to reflect all instructions issued upto March 31, 2025 on the above matter, as listed in the Annex. It may be noted that this Master Circular only consolidates all instructions on the above matter issued up to March 31, 2025 and does not contain any new instructions/guidelines.
It is stated that this master circular is applicable to all Scheduled Commercial Banks, excluding Regional Rural Banks.
The Key highlights of the Master Direction are as follows:
• Bank finance can be 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 period as may be laid down by the banks themselves.
• Banks may grant loans to individuals for purchase/construction of dwelling unit per family and loans for repairs to the damaged dwelling units of families.
• Banks may extend finance to a person who already owns a house in town/village where he resides, for buying/ constructing a second house in the same or other town/ village for the purpose of self-occupation.
• Banks may consider requests for additional finance within the overall ceiling for carrying out alterations/ additions/repairs to the house/flat already financed by them.
• In the case of individuals who might have raised funds for construction/ acquisition of accommodation from other sources and need supplementary finance, banks may extend such finance after obtaining paripassu or second mortgage charge over the property mortgaged in favour of other lenders and/or against such other security, as they may deem appropriate.
• 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.
• Banks may grant term loans to housing finance institutions taking into account (longterm) debt-equity ratio, track record, recovery performance and other relevant factors including the provisions of Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs) dated April 1, 2025, as amended from time to time.
• Banks may extend term loans to state level housing boards and other public agencies. However, in order to develop a healthy housing finance system, while doing so, the banks 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 Boards will ensure prompt and regular recovery of loan instalments from the beneficiaries.
• While appraising loan proposals involving real estate, banks should ensure that the borrowers should have obtained prior permission from government / local governments / other statutory authorities for the project, wherever required. In order that the loan approval process is not hampered on account of this, while the proposals could be sanctioned in normal course, the disbursements should be made only after the borrower has obtained requisite clearances from the government authorities.
[Notification No. RBI/2025-26/16 DOR.CRE.REC.No.12/08.12.001/2025-26]
