Role of Bank/Financial Institutions in Real Estate Sector


Status as on- 09/05/2021


Real estate sector plays a crucial role in economic development of India. Rise in real estate business elevates the role of financial institutions. Every person wishes to have a house of his choice for dignified living and a secured future. For a common man, it’s quite difficult to invest huge amounts at a particular time in some project where he is assured to have a decent apartment. According to the payment plans, mostly 90% of the payment of total sale consideration has to be made at the initial stage after booking an apartment which seems impossible without any financial assistance. Here comes the role of financial institutions. Let’s talk about that.

Role of financial Institutions

Financial or banking institutions have always been a great support to provide liquidity to the economy. If we talk about the real estate sector, financial institutions continue to be a big helping hand for its growth. Both builders and buyers knock the doors of these big institutions seeking financial assistance. Whenever a real estate project gets announced, the developer requires huge investments for the development of the project for which he approaches banks for financial help. Now, the developer makes advertisements to attract people to come and invest in the project for more funding. After booking a unit in the project, now the buyer approaches the bank seeking loan for the apartment he booked. For a common man, banks play a very important role in fulfilling his dream to own a house and live a dignified life. This is how all the three – builder, buyer and the bank get connected in real estate business.

Tripartite Agreements

Every business requires a strong legal documentation for making the deal effective. The abovementioned business between builder and buyer along with the bank is done under a tripartite agreement. This agreement defines all the terms and conditions which have to be followed by both buyer and builder with respect to the loan granted by the bank. As, buyer is the one who is taking the loan particularly, so more liabilities are imposed on the borrower (buyer) than that on the builder. Tripartite agreements also give rise to the rights of approaching the court of law in case of default by any of the parties.

Homebuyers in trouble

After performing all these formalities, the buyer will realize that there is no work done at the construction site. When he asks the builder about the same, “lack of funds” would be one of the reasons given by the builder. Soon he will realize that he is not getting the possession on time as still there is 70-80% of work left even after passing of 3-4 years since the project got started and now he can’t expect the work to get completed within over a night till the date of possession as mentioned in tripartite agreement & BBA.

Now the bank will start imposing Pre EMIs on the borrower (buyer) on default of the builder who is unable to provide the possession on time. This is the extra burden borne by the innocent homebuyer which would not even be included in the Principal amount. Upon complaining the same to the builder, he would assure the buyer to adjust this amount of Pre EMIs with the remaining amount of the total sale consideration at the time of possession in future. So basically now the buyer finds himself in a trap set up by the developer where he has already paid huge booking amounts & other charges and now he is paying these extra monthly EMIs without even getting the physical possession of his unit.

Legal remedy

Even after making all the efforts possible, the buyer still finds himself in a trap. This kind humiliation and exploitation gives rise to the feeling of being cheated and puts the innocent homebuyer in financial crises.

If you are one of such aggrieved homebuyers, file a RERA complaint against any such builder as soon as possible. You can file a complaint before RERA Authorities either for possession along with a delay penalty or for refund along with compensation. You can also knock the doors of NCLT if you are a group of 100 homebuyers or 10% of the total homebuyers of such projects. Right legal advice plays a very important role in showing you a right legal path with an effective remedy.

Disclaimer– The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinion before relying upon the article. For more information, please contact us at


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