SBI to Review Construction Finance Policy for Housing Projects

• SBI has limited exposure to residential construction finance at present

• Transparency and accountability to influence loan pricing

• Commercial projects need 40–50% tenant commitment for funding

State Bank of India (SBI) is set to revisit its policy on construction finance for housing projects, signalling a cautious but potentially significant shift in its approach to residential real estate lending.

Speaking at an event organised by real estate developers’ body CREDAI, SBI Chairman C S Setty said the bank is currently evaluating how it can re-enter residential construction finance, an area where its exposure remains minimal. He noted that while SBI is gradually building a portfolio in commercial real estate, particularly office spaces, the residential segment requires stricter safeguards.

Setty pointed out that past experiences in the housing market have made lenders wary, with several developers having faced financial stress due to aggressive expansion and overleveraging. He stressed that project transparency, disciplined execution, and sound risk management will be critical factors in determining whether developers can access construction finance—and at what cost.

According to the SBI chief, accountability in project planning and execution provides lenders with confidence and can help developers secure funding at more affordable interest rates. “Stability in transparency, project management, and risk control is what gives comfort to lenders like us,” he said.

On the commercial real estate side, Setty made it clear that SBI expects developers to secure at least 40–50 per cent pre-commitment from tenants before seeking construction finance for office projects. This, he said, helps reduce vacancy risk and improves the overall viability of such developments.

Addressing interest rates, Setty explained that pricing on construction finance is linked to the bank’s Marginal Cost of Funds based Lending Rate (MCLR). Any reduction in lending rates would depend on movements in deposit costs, as MCLR revisions are aligned with changes in term deposit rates. SBI recently adjusted both its MCLR and fixed deposit rates for select tenures.

The SBI chairman also advised non-banking financial companies (NBFCs) operating in the housing finance space to focus on reducing operational costs, enabling them to offer loans at more competitive rates to borrowers.