Subvention Scheme
A payment arrangement where the builder pays the EMI on behalf of the buyer during the construction period. Banned by RBI in 2013 for new home loans but still offered through NBFCs. High risk.
What is a Subvention Scheme?
A subvention scheme — often marketed as "No EMI till possession" or "Pay 10:80:10" — is a payment structure where the builder agrees to pay the bank interest (or full EMI) on behalf of the buyer during the construction period. The buyer pays 10–20% as down payment, the bank disburses the balance to the builder, and the builder services the loan until possession. At possession, the buyer takes over EMI payments.
The attraction: buyers can book an under-construction property without any cash outflow for 2–3 years while the property is being built. The risk: the builder is paying interest from construction funds — a diversion of the 70% escrow money that was supposed to be used for construction.
Regulatory Status
The Reserve Bank of India (RBI) through a circular in July 2013 prohibited scheduled commercial banks (SBI, HDFC Bank, ICICI Bank, Axis Bank, etc.) from offering subvention-linked home loans for under-construction projects. The rationale: it distorts loan recognition, creates contingent liability, and undermines the purpose of construction-linked disbursement.
However, NBFCs (Non-Banking Financial Companies) and housing finance companies not directly regulated by the same circular continue to offer subvention-linked products. Some bank subsidiaries also route these through NBFC arms.
Why Subvention Schemes Are High Risk
- Builder default scenario: If the builder defaults on paying your EMI to the bank, your credit score is damaged and the loan goes into default — even though you have not missed any payments. Banks pursue you, not the builder.
- Project stalling: The most common scenario causing builder default is project stalling — the builder runs out of construction funds because they used escrow money to pay EMIs. The buyer then faces both no apartment and an NPA (non-performing asset) on their credit file.
- Higher total cost: Interest during the subvention period is typically built into the apartment cost — there is no free lunch. The "No EMI till possession" schemes often have higher base prices than non-subvention schemes at the same project.
How Brickplot Uses This
Brickplot flags all projects offered with subvention schemes in our database. Buyers who filter for low-risk projects will not see subvention scheme projects in their default results. The flag includes an explanation of the specific risk — not a blanket prohibition, as some buyers understand and accept the structure.
Related Terms
- Tripartite Agreement — the three-party agreement that governs the subvention arrangement
- Home Loan Eligibility — applies to the buyer even in subvention schemes
- EMI Calculation — the EMI the buyer eventually takes over at possession
Related terms
Brickplot verifies subvention scheme disclosures on every reviewed project as part of the independent 11-axis score. No builder commissions. No editorial override.