Reserve Bank clears funding for self-development projects

Mumbai: The Reserve Bank of India (RBI) on Wednesday allowed the state cooperative banks and district central cooperative banks (DCCBs) to finance self-development projects, in a major relief to Mumbai’s housing societies that had opted to redevelop their old buildings themselves.

Fed up with delays and swindling by private builders in redevelopment projects, hundreds of housing societies had made a beeline for the self-development model proposed by Mumbai DCCB, which allows housing society members to get bigger sized homes and also closely monitor the completion of the projects.

However, in February 2020, the RBI had asked the Maharashtra State Cooperative Bank to ask all DCCBs to stop financing self-development projects as they fall in the category of commercial real-estate projects. The central bank had then said the primary role of the DCCBs was to lend for agriculture and rural development activities and risky exposure to commercial real estate could impact their credit structure. As a result, all ongoing self-development projects were abruptly stalled. At that point, the Mumbai DCCB had sanctioned Rs1,350 crore for self-development proposals, and disbursed Rs17 crore.

This January , the then-Chief Minister Devendra Fadnavis, who was backing the self-development model developed by Mumbai DCCB headed by close aide Pravin Darekar, led a delegation to then-RBI Governor Shaktikanta Das to allow DCCBs to fund self-development.

“Considering the growing need for affordable housing and to realize their potential in providing credit facilities to the housing sector, it has been decided to allow SCBs and DCCBs to extend finance to Commercial Real Estate–Residential Housing (CRE-RH) within the existing aggregate housing finance limit of 5% of their total assets,” RBI said on Wednesday.

The bank also enhanced the limits of individual housing loans by cooperative banks. “Taking into account the increase in housing prices since the limits were last revised and considering the customer needs, it has been decided to increase the existing limits on individual housing loans by cooperative banks,” the bank said. It has raised the limits for Tier-1 and Tier-II urban cooperative banks from Rs30 to Rs70 lakh, to Rs60 lakh to Rs1.40 crore.

Abhishek Ghosalkar, director, Mumbai DCCB, said self redevelopment is the best alternative for housing societies considering the number of stalled projects and the defaults committed by a number of private developers.