Circulars/Notifications / Infrastructure, Housing & SME Finance Department  

 IH&SMEFD Circular No. 10 of 2021
September 02, 2021

The Presidents/Chief Executives
All Banks/DFIs

Dear Sir(s)/ Madam(s),

Guidelines for financing of housing units in under-construction projects

  1. The builders/developers are developing and marketing a number of multistorey projects of housing units across the country. Although these under construction projects are exposed to project completion risk and performance risk of builders/developers, many individuals are attracted to book housing units in these projects owing to their affordability and option of payments through installments. However, the banks/DFIs have traditionally shied away from financing to the housing units in under construction projects due to issues in availability of legally enforceable title documents and registration of mortgages as per requirements of Prudential Regulations (PR) for Housing Finance.

  2. It may be noted that banks/DFIs extend project financing to builders/developers for construction of multistorey housing projects after adequately securing their project and builder risks through mortgage of project land and other securities. Utilizing these already established security arrangements with the builders/developers, the banks/DFIs may also extend housing finance against housing units in multistorey housing projects. This will expand options of affordable housing to the individual borrowers. This will also facilitate banks/DFIs in ensuring repayment/ settlement of their project financing through conversion of the same in housing finance.

  3. In view of the above considerations, State Bank has decided to issue guidelines to encourage banks/DFIs to extend housing finance to the housing units in under construction projects for which they have already entered into arrangements of project financing with builders/developers. These Guidelines for Financing of Housing Units in Under-construction Projects have been developed considering current market norms of buying/selling of housing units in under construction projects by addressing issues of legally enforceable rights and responsibilities. While guidelines comprehensively cover various aspects, it may be noted that all payments to the builder/developer for completion of construction/project shall be routed through an escrow account maintained by the bank/lead bank of consortium. The builder’s/developer’s equity and purchasers’ equity contribution and subsequent payments of the purchasers through mortgage financing shall be routed through the same account.

  4. Accordingly, State Bank has decided to exempt banks/DFIs extending housing finance for under construction housing units from requirements as specified under Regulation HF 8: Creation of Mortgage for Housing Finance. This exemption will be available till arrangement of completion certificate, NOCs, approvals, utility connections and registered title deed between builder/developer and buyers of housing units. In order to avail this exemption, the banks/DFIs will, however, be required to meticulously comply with provisions of Guidelines for Financing of Housing Units in Under-construction Projects.

  5. All other instructions on the subject will remain unchanged.

  6. Please acknowledge receipt.

    Encl: Guidelines for Financing of Housing Units in Under-construction Projects

Yours sincerely,


(Dr. Mian Farooq Haq)


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