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NHB regulation links loan disbursal with progress at work: Sudhin Choksey, Gruh Finance

10/90 or 15/85 schemes mostly undertaken by large rather than small builders.

ET Now|
Jul 22, 2019, 11.45 AM IST
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Sudhin Choksey-1200
The new NHB regulation banning 10/90 or 5/95 schemes would have a slowdown effect on housing because no more individual loans will be disbursed unless and until there is progress at work, says Sudhin Choksey, MD, Gruh Finance. Excerpts from an interview with ETNOW.

NHB is saying that no 10/90 or 5/95 schemes will be allowed. Is this going to have a further impact on low-cost housing/HFC demand?
It has to be viewed from the point of view of prudence. NHB earlier also had drawn the attention of HFCs saying these are the schemes which primarily accommodate the developers because they get funding in advance, corresponding to the progress of the work and indirectly they are using a lower cost of funds. What happens is the borrowers agree to taking a loan upfront in advance, which will be serviced by the developers. However, what happens is in case the project does not get completed or if there is a delay, lots of customer grievances has been that the loan being service loan has already been disbursed while the unit is not completed. As customer grievances are there in respect of such schemes, NHB has now restricted it. They had cautioned the HFCs about it.

Could you outline that through this 10/90 or 85/15 scheme, what was the total activity happening in the real estate market and how large is this exposure for the small builders?
It has mainly been done by the large builders rather than the smaller builders. If you see the various projects, especially during the period when real estate sector was slowing down, many new projects or developers came out with the scheme that you pay only 10% margin and the balance 90% will come by way of a loan on which the servicing of the interest will be done by the developers.

This has been done for quite a while now. It is nothing new but it gets spread over a sector when the sector is going through a slower pace and developers are facing funding issues.

Could there be any discrepancy in whether or not some developers would be badly hit and some lesser hit because as we understand, even large developers will be impacted because they have heavily relied on these kind of subvention so far?
No, no certainly, most of the developers and lately almost all leading developers had resorted to this practice. There would be a slowdown because no more individual loans will be disbursed unless and until there is progress of work. If NHB regulation which has just come out has three aspects; one should not be participating in such subvention schemes and so obviously funding to the developers will stop. Two, the disbursal of the loan should be linked to the progress or the construction progress; and three, all HFCs are expected to put in place the system to monitor the progress of the construction. The developers will face further difficulty.
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