SBI to Reassess Construction Finance Policy for Housing Projects

New Delhi, State Bank of India (SBI) Chairman C S Setty stated on Saturday that the bank will reassess its policy on construction finance for residential real estate, with a strong focus on accountability and transparency. This move comes as the bank has a negligible presence in construction finance for housing projects but is gradually building a portfolio in commercial real estate, particularly in office space.

At present, the bank's involvement in construction finance for housing projects is minimal. However, Setty emphasized that the bank is working on a strategy to expand in this area. He noted that many aggressive players in the residential real estate market have faced significant challenges due to overleveraging. "The stability in terms of transparency, project management, and risk management gives us some confidence. Accountability is what will give confidence to lenders like us, and you will be accessing construction finance at a much more affordable cost," Setty explained.

For commercial real estate, Setty highlighted that developers should ensure at least 40-50 percent commitment from potential tenants before availing construction finance. "We would like a situation where we have a building but not occupied," he remarked during an event organized by CREDAI, a body of real estate developers.

When asked about the reduction in interest rates on construction finance, Setty clarified that the rates are linked to the Marginal Cost of Funds based Lending Rate (MCLR), which is revised in sync with term deposit rates. The bank recently revised both MCLR and fixed deposit rates for select categories.

Setty also advised Non-Banking Financial Companies (NBFCs) engaged in the housing finance sector to reduce their operational costs. This would enable them to offer loans at more competitive rates, making housing finance more accessible and affordable for consumers.

SBI, the largest lender in the country, is taking a cautious yet strategic approach to re-evaluate its construction finance policies. This reassessment aims to balance growth with risk management, ensuring that both the bank and developers can benefit from a more stable and transparent financial environment.