Cooperative banks to refrain from sanctioning loans, advances: RBI

Mumbai, Feb 29 (UNI) The Reserve Bank of India has sought Urban Cooperative Banks (UCB) to refrain from sanctioning loans and advances to builders and contractors.

In a circula to the UCBs, the Apex Bank said that while financing builder and contractors, certain banks were found to be valuing the land for the purpose of security, on the basis of discounted value of the property after it was developed, less than the cost of development. This was not inconfirmity with the established norms.

It said that the UCBs could extend loans where contractors undertake comparatively small construction work on their own (ie when no advance payment are received by them for the purpose), UCBs may consider extending financial assistance to them against hypothecation of construction materials, provided such loans and advances were in accordance with the by-laws of the banks and instructions and directives issued by the Reserve Bank from time to time.

The Central Bank clarified that UCBs should not extend fund based and non-fund based facilities to builders and contractors for acquisition of land even as a part of a housing project.

Further, wherever land was accepted as collateral, valuation of such land should be at the current market price only.

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