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The Reserve Bank of India (RBI) has asked all Regulated Entities (that is, banks and non-banking financial companies), to release the original documents of movable or immovable property within a month of the full repayment or settlement of loans by borrowers.
In case of delay, the lender will have to compensate the borrower at the rate of Rs 5,000 per day of delay, the RBI said. The directives will come into effect on December 1, 2023.
What has RBI said?
The central bank on Wednesday directed all Regulated Entities (REs) — that is banks, non-banking finance companies (NBFCs), housing finance companies, small finance banks (SFBs), regional rural banks (RRBs) and cooperative banks — to release, as part of responsible lending conduct, the original movable or immovable property documents, and remove charges registered with any registry within a period of 30 days after full repayment or settlement of the loan account by a borrower.
The RBI said a borrower will have the option of collecting the original property documents either from the banking outlet or the branch where the loan account was serviced, or any other office of the RE where the documents are available, as per their preference.
The lender will have to mention the timeline and place of return of original property documents in the loan sanction letters issued on or after December 1, 2023.
To address a situation in which the borrower(s) are no longer alive, the lenders must have a well laid out procedure for the return of the original property documents to the legal heirs, the RBI said. The Regulated Entities will have to display the procedure on their website, along with other policies and procedures for the information of customers.
Why the new directives?
The RBI said it had been observed that the REs follow divergent practices in the release of property documents, which leads to customer grievances and disputes. The directions have been issued to address these issues and to promote responsible lending conduct, the RBI has said.
What kind of loans are impacted?
This is for personal loans, which, as per the RBI’s definition, are loans that are given to individuals, and which consist of consumer credit, education loan, loans given for creation or enhancement of immovable assets (such as housing), and loans given for investment in financial assets like shares and debentures. The new directives will be applicable to all these categories of loans.
What if the lender still delays releasing the property documents?
The RBI has said that in case of a delay in releasing the original movable or immovable property documents, or a failure to file the charge satisfaction form with the relevant registry beyond 30 days after the full settlement of the loan, the RE will have to communicate to the borrower the reasons for the delay.
“In case where the delay is attributable to the Regulated Entity, it shall compensate the borrower at the rate of Rs 5,000 for each day of delay,” the RBI said.
In the event of loss or damage to original property documents, either in part or in full, the lender will assist the borrower in obtaining duplicate or certified copies of the property documents and will also bear the associated costs, in addition to paying compensation of Rs 5,000 per day for each day of delay beyond the stipulated 30-day timeframe, the RBI has said.
However, in such cases, an additional time of 30 days will be available to the REs to complete this procedure and the delayed period penalty will be calculated thereafter, that is, after a total period of 60 days.
When will the new directives be applicable?
The RBI said these norms will be applicable to all cases in which the release of the original documents becomes due on or after December 1, 2023.
