Is the 10:90 Subvention Scheme illegal in India?

While not entirely illegal, the RBI and National Housing Bank (NHB) have banned Housing Finance Companies from aggressively funding schemes where developers pay the interest. However, loopholes still exist via NBFCs, so buyers must remain highly cautious.

If the builder defaults on the pre-EMI, can the bank seize my property?

Yes. Since the bank disbursed the loan against your PAN card and your property, you are legally the primary defaulter. The bank can initiate recovery proceedings against you under the SARFAESI Act.

Why do builders offer to pay my interest for 3 years? What is the catch?

Builders do not have cheap access to capital. Corporate loans cost them 15-18%. By using YOUR good credit score to take a Home Loan at 8.5%, they get cheap funding to finish their project. You are essentially acting as an unsecured ATM for the developer.

Back to Blog

Real Estate

The 'Subvention Scheme' Warning: Why 10:90 Real Estate Deals Bankrupt Buyers

Thinking of buying an under-construction flat with a "Pay 10% now, rest on possession" scheme? Discover why the RBI cracked down on these 20:80 subvention schemes and how they destroy your CIBIL score.

8 March 2026

12 min read

Get App

Key Definitions

Subvention Scheme (10:90 / 20:80)A marketing gimmick where you pay 10% upfront, the bank pays 90% to the builder, and the builder promises to pay the interest on that 90% until you get the keys.

Pre-EMIThe interest component you pay to the bank only on the loan amount disbursed so far, before the actual principal repayment (Full EMI) begins.

Tripartite AgreementA legal contract involving three parties: The Buyer, The Builder, and The Bank. In subvention schemes, this agreement heavily favors the bank and builder over the buyer.

Key Takeaways

Subvention Schemes (like 10:90 or 20:80) are tripartite agreements where the builder promises to pay your home loan interest (Pre-EMI) until possession.
The loan is in YOUR name, not the builder's. If the builder stops paying the interest to the bank, your CIBIL score gets instantly destroyed.
Because developers factor the interest cost into the price, properties sold under subvention schemes are artificially overpriced by 10% to 15%.
The RBI and NHB have severely cracked down on these schemes because builders were diverting the upfront bank funds to other stalled projects instead of building your home.
For first-time buyers: A Construction-Linked Payment Plan (CLP) is mathematically safer, despite requiring you to pay your own pre-EMIs.

The 'Subvention Scheme' Warning: Why 10:90 Real Estate Deals Bankrupt Buyers

The "EMI Holiday" Illusion

Imagine this: You walk into a lavish real estate sales office. You want to buy your first home, but it's an under-construction property that will take 3 years to build. You are currently paying ₹40,000 in rent, and the thought of paying both rent and a Home Loan EMI sounds financially suicidal.

The smartly-dressed sales agent smiles and says: "Don't worry. We have a special 10:90 Subvention Scheme. You pay just 10% today. The bank funds the rest. And the best part? Our company will pay all the interest on your loan until we hand over the keys. You enjoy a 3-year EMI Holiday!"

It sounds like a once-in-a-lifetime deal.

It is actually a mathematical trap designed to transfer all the developer's financial risk directly onto your shoulders.

Here is the brutal truth behind real estate subvention schemes, why the RBI hates them, and why first-time homebuyers must avoid them at all costs.

How the 10:90 Trap Works

A subvention scheme is a Tripartite Agreement between You, the Builder, and the Bank.

•You pay a booking amount (10% or 20%).
•The Bank disburses the remaining 90% or 80% to the builder to fund the construction.
•The Builder agrees to pay the Pre-EMI (interest) to the bank for a specified period (usually 24-36 months, or until possession).

On paper, this sounds like a win-win-win. You get a house without paying heavy EMIs immediately. The bank gets a new loan customer. The builder gets the cash to build the tower.

But here is where the math—and the reality of Indian real estate—breaks down.

The 3 Lethal Risks of Subvention Schemes

1. You Are the Unsecured ATM

Why would a developer willingly pay the interest on your loan? Because they don't have money, and banks refuse to lend to them directly.

When a real estate developer goes to a bank for a corporate construction loan, the bank sees high risk and charges them an interest rate of 15% to 18%.

However, you are a salaried professional with a great CIBIL score. If you take a home loan, the bank charges you 8.5%.

By convincing you to sign a 10:90 scheme, the builder is legally using your good credit score to borrow millions of rupees at a cheap 8.5% rate. The builder gets the cash upfront, and you take 100% of the liability.

2. The CIBIL Score Destruction

Here is the darkest secret of the subvention agreement: The loan is entirely in your name.

The builder signs a separate side-agreement promising to pay the Pre-EMIs to the bank on your behalf. But what happens if the builder runs out of money and stops making those monthly interest payments to the bank?

The bank does not care what the builder promised you.

Because the loan is tied to your PAN card, the bank immediately reports a default against your name to the credit bureaus. Your CIBIL score will drop by 100+ points overnight. If you don't step in and pay the builder's defaulted EMIs out of your own pocket, the bank will initiate legal recovery proceedings against you, not the builder.

Thousands of homebuyers in Noida and Gurugram faced this exact nightmare when their developers went bankrupt in 2018-2020. They were left with no house, a destroyed credit score, and banks harassing them for loan recovery.

3. The Hidden Price Premium

Builders are businesses; they do not do charity. The 3 years of interest they promise to pay the bank isn't coming out of their profit margins. It is baked into the price of your flat.

If a flat under a normal Payment Plan costs ₹1 Crore, the exact same flat under a 10:90 Subvention Plan will be priced at ₹1.10 Crore to ₹1.15 Crore.

You are effectively paying a massive, hidden premium just for the illusion of an "EMI Holiday." When you calculate the math, you are paying the builder extra money now so the builder can pay your interest later. It is financially nonsensical.

The RBI Crackdown

Because developers were taking the upfront 90% bank disbursements and illegally diverting the funds to start other projects (instead of finishing the one they sold you), the Indian regulatory bodies intervened.

The Reserve Bank of India (RBI) and the National Housing Bank (NHB) cracked down heavily on these schemes. They instructed banks and Housing Finance Companies to stop aggressively funding models where developers pay the interest. They mandated that loan disbursements must strictly be linked to the actual physical completion of construction stages.

However, greedy developers still find loopholes, often partnering with smaller shadow banks (NBFCs) to offer slightly modified "15:85" or "No EMI till possession" deals.

The Verdict for Beginners

If you are buying an under-construction property in 2026, the only safe method is a Construction-Linked Plan (CLP).

In a CLP, the bank only releases funds to the builder as physical milestones are achieved (e.g., 10% on casting the foundation, 10% on the 5th floor slab, etc.).

Yes, this means you will have to pay the Pre-EMI out of your own pocket while simultaneously paying rent. It is financially painful in the short term. But mathematically, it ensures that your loan liability is directly tied to the actual bricks and mortar standing on the ground, protecting you from builder fraud, project abandonment, and CIBIL bankruptcy.