Builders to face safety test for bank loans

MUMBAI: Banks will now have to ensure that constructions are resistant to natural disasters before taking loan exposure to builders. Reserve Bank of India (RBI) has asked lenders to consider incorporating the National Building Code (NBC) into their loan policies.

NBC, which has been formulated by the Bureau of Indian Standards in ‘05, aims to safeguard buildings against natural disasters.Two months ago, the regulator carried out a scrutiny of builders’ loan portfolios of
some large banks.

RBI had earlier voiced concerns over banks taking big exposure to commercial properties, and tightened the lending norms accordingly.

Under the notification issued this week, banks, which fund both construction of premises and their purchase, may be in a position to significantly influence safety standards. So far, though, banks have largely restricted themselves to ensuring the construction does not violate existing guidelines.

RBI advisory asks banks to go beyond the requirement of regional authorities, since the NBC ‘05 has not yet been adopted in formulating guidelines for construction.

In a circular to all banks this week, RBI said: “Adherence to NBC will be advisable in view of the importance of the safety of buildings, especially against natural disasters. Bank boards may consider this aspect for incorporation in their loan policies.”

Bankers feel they cannot possibly disregard an advisory from the central bank, particularly in view of the rising exposure to real estate.

The second revision of the NBC of India by the Bureau of Indian Standards aims to address the issue of natural calamities and includes the latest provisions for earthquake-resistant design and construction. It also has a provision to certify safety of buildings against natural disaster by engineers and structural engineers.

The code contains all important aspects relevant to safe and orderly building development such as administrative regulations, development control rules and general building requirements; fire safety requirements; stipulations regarding materials, structural design and construction (including safety); and building and plumbing services.

In other parts of the world, particularly in developed countries, banks and insurance companies have a significant say in ensuring that safety provisions are incorporated. In India, however, this has not happened.