SBI Signals Cautious Re-entry into Residential Construction Finance

State Bank of India has indicated a cautious yet deliberate shift in its approach to construction finance, particularly in the residential real estate segment. The country’s largest lender is reassessing its policy after maintaining a minimal presence in housing project financing for several years, shaped largely by lessons from earlier market cycles.

Speaking at a real estate industry forum, SBI Chairman C S Setty said the bank remains open to supporting residential construction, but only where projects demonstrate high levels of transparency, accountability, and sound risk management. He noted that aggressive expansion by some developers in the past, often driven by excessive leverage, resulted in project failures that continue to influence lender sentiment today.

While residential exposure remains limited, SBI has been steadily building its loan book in commercial real estate, especially office developments. In this segment, the bank follows a conservative framework, requiring developers to secure at least forty to fifty percent pre commitment from tenants before construction finance is approved. This approach, Setty explained, reduces vacancy risks and improves the long term viability of projects.

On lending rates, the chairman clarified that construction finance pricing is closely linked to the Marginal Cost of Funds based Lending Rate. Any reduction in interest rates depends on changes in deposit costs, as revisions in MCLR typically move in line with term deposit rates. Earlier this month, SBI revised both MCLR and fixed deposit rates for select tenures, reflecting broader funding dynamics.

Setty also urged non banking finance companies active in the housing sector to focus on reducing operational costs. Greater efficiency, he said, would enable lenders to pass on lower borrowing costs to developers and homebuyers.
Overall, SBI’s message to the real estate industry is one of cautious optimism. Developers who prioritise governance, maintain financial discipline, and ensure transparent project execution are more likely to gain lender confidence, potentially improving access to construction finance as the housing market evolves.