SBI to Reassess Construction Finance Policy for Housing Projects: Chairman

State Bank of India (SBI) Chairman C S Setty recently stated that the bank will reassess its policy on construction finance for residential real estate. This move comes with a strong emphasis on accountability and transparency as key factors in determining interest rates for such loans.

At present, SBI has a minimal presence in construction finance for housing projects. However, the bank is gradually building a portfolio in commercial real estate, particularly in office spaces. Setty highlighted, “So how do we work out on the construction (finance), particularly on the residential real estate, is something that we are working on. But it is also a fact that many of the people who have been aggressive on the residential real estate market have burned their hands.”

He reminded real estate developers of past failures due to overleveraging, emphasizing the need for stability in transparency, project management, and risk management. “Accountability is something that is going to give confidence to the lenders like us, and you will be accessing the construction finance at a much affordable cost,” Setty added.

When it comes to commercial real estate, Setty advised developers to ensure at least 40-50 percent commitment from potential tenants for upcoming office spaces to avail construction finance. “We would like a situation where we have a building but not occupied,” he said during an event organized by CREDAI, a body of real estate developers.

Regarding the reduction in interest rates on construction finance, Setty explained that it is linked to the Marginal Cost of Funds based Lending Rate (MCLR). Revisions in MCLR align with changes in term deposit rates. Earlier this month, SBI 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.

The reassessment of SBI’s construction finance policy is a significant step towards supporting the real estate sector while ensuring financial prudence and stability.