RBI Tells Supreme Court It Has Set Guidelines to Track Realtors Use of Loan Funds

The Reserve Bank of India has told the Supreme Court that it had already issued necessary guidelines over the years to monitor how builders use housing loan funds. This statement comes amid rising concerns over the misuse of funds by developers under subvention schemes and alleged harassment of homebuyers by banks.

RBI Tells SC It Monitors Loan Use by Realtors 

The RBI, through an affidavit submitted to the apex court, stated that it has fulfilled its statutory duties under the Banking Regulation Act. It emphasised that banks and financial institutions were already instructed on various occasions to ensure that housing loan disbursements are aligned with the actual stages of project construction. The regulator also asserted that it had warned lenders not to engage in intimidation or harassment of borrowers during recovery proceedings.

The Subvention Scheme and Its Fallout

Under the subvention model, the sanctioned loan amount is disbursed directly by the bank to the builder. Until the homebuyer takes possession, the builder is responsible for paying the EMI. Problems arose when many developers failed to complete projects and also defaulted on EMI payments. Consequently, banks turned to homebuyers for repayment, triggering legal and regulatory intervention.

The Supreme Court intervened when aggrieved homebuyers filed petitions regarding bank actions for EMI recovery. It later ordered a Central Bureau of Investigation probe into the alleged collusion between certain builders and banks.

Regulatory Measures by RBI Since 2015

The central bank highlighted that as early as 2015, it had cautioned lenders about subvention-linked disbursements. Through official circulars, it mandated that the release of housing loans should be directly tied to the actual progress of construction, rather than upfront payment for under-construction properties.

These measures were aimed at ensuring better financial discipline, reducing the chances of fund diversion, and protecting buyers from financial liability due to developer defaults.

Supreme Court Relief for Homebuyers

In July of the previous year, the Supreme Court provided relief to affected homebuyers, instructing that no coercive steps should be taken by banks or builders for EMI recovery in cases where possession was delayed. The court also ruled that cheque bounce cases against such buyers would not be entertained.

These directions followed petitions from hundreds of homebuyers who had not received their homes and were being pressured to repay EMIs that developers had failed to honour.

Read More: RBI Cuts Repo Rate by 50 bps in June 2025: Will Your Home Loan EMI Decrease?

Ongoing Scrutiny and Legal Developments

With several financial institutions under the scanner and a CBI investigation underway, the matter continues to unfold in India’s highest court. The RBI’s submission appears to distance the regulator from direct involvement, highlighting its role as a policy-setting authority rather than an enforcement body in these individual loan disbursement disputes.

Conclusion

The RBI has clarified its regulatory stance, stating that it has issued appropriate guidelines to monitor loan disbursement practices and protect borrowers. As the Supreme Court and investigative agencies continue to address the broader issue, the case remains a significant development in the intersection of financial regulation, real estate, and consumer protection.

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