No Release Without Your Say: RBI's HFC Rule on Paying Builders, Explained
RBI's Housing Finance Companies Directions, 2025, updated as on October 1, 2026, require HFCs to monitor construction and obtain the borrower's consent before releasing payments to a builder, link disbursal strictly to construction stages, and desist from builder paid EMI products. This guide shows Bengaluru buyers of under construction flats how to use that consent step.
Fourteen months into construction, a Bengaluru buyer gets a text from the housing finance company that sanctioned her loan: Rs 9 lakh has been released to the builder against the slab stage. She never saw a request, never visited the site that month, and never said yes. The tower is rising, but she has no idea whether the slab the money paid for actually exists.
For borrowers of housing finance companies, RBI's current rules speak directly to that moment. They require HFCs to monitor construction progress and to obtain the borrower's consent before releasing payments to a builder. This guide explains what the rules say, how they differ from what many buyers assume, and how a Bengaluru buyer of an under construction flat can use them. It is buyer guidance on loan conduct rules, not a view on any project or lender.
The short answer. RBI's Housing Finance Companies Directions, 2025, updated as on October 1, 2026, say an HFC shall have a well defined mechanism to monitor construction progress and obtain the borrower's consent before releasing payments to the builder. Disbursal to individuals shall be strictly linked to construction stages, with no upfront disbursal for incomplete or under construction projects, and HFCs shall desist from products where builders service loan dues on the borrower's behalf. The trade-off: consent puts you in the loop, but it also makes you responsible for checking each stage, which takes time and a site visit or reliable evidence before you say yes.
What do the HFC Directions say about releasing money to builders?
They put the borrower in the approval chain. Paragraph 187 of the Directions says an HFC shall have in place a well defined mechanism for effective monitoring of the progress of construction of housing projects and obtaining consent of the borrower or borrowers prior to release of payments to the builder or developer.
Paragraph 183 adds that disbursal of housing loans sanctioned to individuals shall be strictly linked to the stages of construction of the housing projects or houses, and that upfront disbursal shall not be made in case of incomplete, under construction or green field housing projects or houses. Paragraph 188 says an HFC, while extending finance, shall take into account the stipulations laid down under RERA, as applicable.
Why does consent matter for an under construction flat?
Because every rupee released starts costing you interest. On a stage linked loan, interest is charged on what has been disbursed, so a release that runs ahead of real progress means paying for construction that has not happened yet. Our worked example of pre-EMI on a staged Rs 80 lakh loan shows how quickly those payments build up as tranches are released.
To put a number on it, take the Rs 9 lakh slab release in our example. Using, for illustration only, the 8.51 percent average rate on fresh rupee loans that RBI reported for September 2026 in its October 30, 2026 release, interest on Rs 9 lakh works out to about Rs 6,383 a month. If that money goes out three months before the stage is genuinely complete, the buyer pays roughly Rs 19,150 in interest for work that was not yet done.
Consent is your checkpoint. If you are asked to approve a payment for a stage, you can ask what evidence the lender and builder have that the stage is complete. If you are not asked, you can ask the HFC how its monitoring mechanism works and why your consent was not sought before the release.
What about schemes where the builder pays your EMIs?
The Directions steer HFCs away from them. Paragraph 186 says the HFC shall desist from offering loan products involving servicing of the loan dues by builders or developers on behalf of the borrowers. Paragraph 184 adds that an HFC introducing any product shall take into account customer suitability and appropriateness, and ensure borrowers are made fully aware of the risks and liabilities.
If a sales team pitches a no EMI till possession offer funded through an HFC, treat that as a question to put to the lender in writing, not a feature to accept. Our earlier explainer on subvention schemes where the builder pays the EMI sets out the risks such structures can carry for the buyer.
How do the HFC rules map onto each stage of your purchase?
The table pulls the relevant paragraphs together with a practical step for each. The first two columns restate the Directions; the last three are buyer actions.
| Stage | What the HFC Directions say | Your action | Evidence to ask for | Red flag |
|---|---|---|---|---|
| Sanction | HFC shall take into account RERA stipulations, as applicable | Confirm the project's RERA registration yourself | The RERA documents the lender reviewed | Lender cannot say what it checked |
| Each payment to builder | Monitor construction progress and obtain borrower consent before release | Approve only after checking the stage | Stage completion evidence and the builder's demand | Release made without your consent |
| Disbursal pattern | Strictly linked to construction stages; no upfront disbursal for under construction projects | Compare releases with the payment plan | Disbursal statement with dates | Large release far ahead of progress |
| Builder paid EMI offers | HFC shall desist from products where builders service dues for borrowers | Ask the HFC in writing before signing | Written explanation from the lender | Offer pitched only verbally |
| Government or statutory authority project | HFC may follow the authority's payment stages if the authority has no past history of non-completion | Ask how the authority's schedule applies | Authority's payment schedule | Unclear authority track record |
Is your lender an HFC or a bank, and does it matter?
It matters, because the consent paragraph sits in the HFC Directions. An HFC is a housing finance company registered with RBI under the National Housing Bank Act, 1987, as RBI's NBFC Responsible Business Conduct Directions, 2025 note when listing the companies they apply to. Your sanction letter will name the lender; if it is a housing finance company, these Directions apply to it.
If your loan is from a scheduled commercial bank, the picture is different. RBI's April 1, 2025 Master Circular on Housing Finance for banks says disbursal to individuals should be closely linked to construction stages, with no upfront disbursal for under construction projects, but the circular text we reviewed does not contain an equivalent paragraph on obtaining the borrower's consent before each release. A bank borrower should therefore ask the bank directly how it approves releases to the builder and whether it will notify you before each one. Getting that answer in writing at sanction costs nothing and avoids surprises later.
What should you check before saying yes to a release?
Three things, at minimum. First, the builder's demand letter: which stage it claims, and the amount. Second, evidence that the stage is actually complete, whether a site visit, recent photographs with dates, or the architect or engineer certificate the builder relies on. Third, the amount your lender proposes to release and how it compares with your agreement's payment plan.
If anything does not line up, say so in writing to the HFC before you consent. The Directions put the consent step on the lender's side; using it well is up to you. If you are buying in a project such as Sumadhura Solace in Whitefield or any other under construction tower, keep a simple log of each demand, each consent and each release.
A seven-point checklist for HFC borrowers buying under construction
- Ask your HFC to describe, in writing, how it monitors construction progress for your project.
- Ask how and when it will seek your consent before each payment to the builder.
- Match every builder demand to a stage in your agreement's payment plan.
- Get stage evidence, such as dated photographs or a site visit, before you consent.
- Check your disbursal statement after each release against the amount you approved.
- Decline any builder paid EMI arrangement until the HFC explains it in writing.
- Keep a log of demands, consents and releases for the life of construction.
What if a payment was released without your consent?
Raise it promptly and in writing. Quote paragraph 187 of the Directions, ask the HFC to explain how the release was approved, and request the stage evidence it relied on. The same Directions require HFCs to have a system for receiving, registering and disposing of complaints, and say an HFC shall endeavour to acknowledge a written complaint within a week and send a final response, or explain why it needs more time, within six weeks.
The Directions also require HFCs to display that if a complainant gets no response within a month, or is dissatisfied, the complaint can be taken to the National Housing Bank's complaint redressal cell. Keep copies of every exchange, so the timeline is clear if you need to escalate.
Frequently asked questions
Does a housing finance company need my consent before paying the builder?
RBI's Housing Finance Companies Directions, 2025, updated as on October 1, 2026, say an HFC shall have a well defined mechanism to monitor the progress of construction of housing projects and to obtain the consent of the borrower before release of payments to the builder or developer.
Can an HFC release my whole loan to the builder upfront?
The same Directions say disbursal of housing loans sanctioned to individuals shall be strictly linked to the stages of construction, and upfront disbursal shall not be made for incomplete, under construction or green field housing projects or houses. A government or statutory authority project may follow that authority's payment stages if it has no past history of non-completion.
Can an HFC offer a scheme where the builder pays my EMIs?
The Directions say an HFC shall desist from offering loan products involving servicing of the loan dues by builders or developers on behalf of borrowers. If such an arrangement is offered to you through an HFC, ask the lender in writing how it fits these Directions before you sign anything.
Do HFCs have to consider RERA when lending for a flat?
Yes. The Directions say an HFC, while extending finance, shall take into account the stipulations laid down under RERA, as applicable. In practice, check the project's RERA registration yourself and ask the lender what RERA documents it reviewed before sanctioning your loan.
Last updated 2026-11-03. PropNewz Team.
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