Project approval process - Requirement v/s Reality

The rules and regulations to be followed by banks approving real estate projects for financing.

It’s a common Practice that Banks & HFC’s approve the project legally & technically as they are mandated to carry out proper Due Diligence by RBI & NHB. It also helps them to secure housing Finance Business from Home Buyers Buying Properties in such Projects.

Even Comemrcial and other real estate projects are also approved by Banks & HFC’s as individuals also buy Commercial & other properties by taking loans.

Approved Projects refer to those real estate properties whose titles and documents have been examined by the bank thoroughly so that interested home buyers can be assured that the developers are genuine and the project is Technically & Legally Clear. Also Builders do not provide the required documents to buyers but they easily proivde the required records and documents to the Banks & HFC’s.

Monitoring of construction Progress and inspection of the property is also to be ensured by the banks & HFC’s before disbursement of Loans. Once the project is approved, the home buyer can apply for a home loan from the Banks & HFC’s approving the project. The home buyers thus do not need to go through the legal or technical verification of the project themselves.

Even the Loans Sanction Letters are conditional to the project approval being on record and the property being legally & technically approved by their panel Lawyer and Architect and Valuers.

Banks & HFC’s follow a particular process for approving the project. One of the first things that are checked by them is to verify if the land on which the project is being developed has been approved by the government and if a proper licence is issued & the building Plans are Approved by a conpetent authority. The bank orders a check of the property’s rights and acquires a report that must mention that the land is free from all legal charges. 

While approving the project the banks must also ensure that the layout and the plans as promised by the builder to the home buyer as per their brochure and Builder Buyer Agreement (BBA) are as per the approved plans by the competent authority. Banks & HFC’s are also expected to ensure that the project has received all required permissions including but not limited to the environmental clearances, Oayment of EDC / IDC , Legal disputes, Third Party Rights and Constuction Finance Facility if any.

a. The Documents Usually Required by banks for Project Approval as practice is as follows:

i. All approved Building Plans

ii. Inventory

iii. Copy of Brochure

iv. APF approval Letters from other banks and FIs

v. Details of Contact person for site visit (Name, Mobile and E-mail Id.)

vi. Other Technical Documents: For APF(Advance Processing Facility) Recommendation.

vii. No Objection certificates for (Wherever applicable)

viii. Environmental Clearance Height Clearance

ix. Fire Clearance Pollution Clearance

x. Board Resolution

xi. Copy of Payments Receipts if property on lease

xii. Account Favouring detail

xiii. Declaration from developer side for charge confirmation

xiv. Payment Plans and price list

xv. Builder details as per annexure-II of APF policy

Legal Documents:

i. Copy of ownership/development rights documents from origination of the land;

ii. Copy of Title Deeds

iii. Copy of License applicable

iv. Copy of MOA for the landowner and developer companies.

v. Draft Buyer Agreement/Allotment Letter

vi. NOC to mortgage from Authority if land is on lease While approving (legal and technical clearance) the project for retail lending.

vii. NOC from the bank to be provided in case of a loan from another bank for project funding.

viii. Any other documents that may be required.

b. On the basis of the above the Banks/HFC’s are required to ensure the following:

i. The ownership of the project in favour of the Developer selling the apartments.

ii. That the Project being sold as per Brochure, Allotment, BBA etc.,and being financed by the HFC/Bank is as per the approved layout by the DTCP.

iii. That the construction is being carried out as per the approved plan and also according to the plan / Layout sold and under finance.

iv. That there is no encroachment on any public land or others land.

v. That no portion of the project land is unlicensed.

vi. That the construction is being carried out as per the construction mile stones and all the above before disbursement of loans.

Any other due diligence as may be required under law & legal requirements for effective transfer of rightful & legal ownership or as required under the lending prudence and direction, Circulars & guidelines by RBI.

Once the project has been approved, the Banks & HFC’s usually assign an Project Approval No for the Advance Processing Facility (APF) to the developers. The APF number confirms that the project has received all the necessary approvals and homebuyers can now invest in it without any tension. 

Advance Approval of projects is important for home buyers as the process of getting approval for the home loan speeds up as the Banks & HFC’s have already checked the project regarding its legal and technical aspects. Moreover, the fact that banks conduct a thorough inspection of the projects also ensures that developers stick to their promises and deliver the project to the home buyers on time. The presence of the Banks & HFC’s makes sure that the developer also provides all amenities as listed in the agreement.

It is a common knowledge that even those home buyers who do not take a loan prefer to look at the projects which have been approved by the leading Banks & HFC’s to be sure that the project is Legally & Techncically Apporved. In that Sense Banks muts realise that they also hold a repsonsibility towards public & Home buyers who may not be taking a loan.

Builders use such Project Approvals from Banks & HFC’s to attract Home Buyers to buy tproperties in their projects and clealry advertise Project Approvals so Granted to their projects.

However considering the current scenario in the real estate market where majority of the projects are either delayed or stuch due to legal & other Disputes it is evident that Banks have not taken the Project Approvals seriously and have not only overlooked various aspects while approving the projects but have also not complied with basic due diligence like monitoring of Constrcution Stages, Change in Building Plans and other importat Aspects Which we shall discuss in the coming articles.

Written By

Rakshit Patni

Student 4th Year BBA LLB

Amity Law School

Gautam Bugh Nagar Noida Uttar Pradesh

Under Guidance Of:

Mr. Manish Kumar Patni

Bsc LLB

Advocate Delhi Bar Council

Legal Consultant & Strategist