The Reserve Bank of India (RBI) on Wednesday, September 13, issued a directive requiring Regulated Entities (REs), including banks, NBFCs (including HFCs), ARCs, LABs, and Co-Op Banks, to release all original movable and immovable property documents within 30 days after the full repayment or settlement of personal loans. Failure to comply with this directive will result in a penalty of Rs 5,000 per day for any delays in the release of these critical documents, the central bank said.

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This move, which comes into effect on December 1, 2023, aims to safeguard the rights of borrowers and streamline the lending process.

"In terms of the guidelines on Fair Practices Code issued to various Regulated Entities (REs) since 2003, REs are required to release all movable and immovable property documents upon receiving full repayment and closure of loan accounts. However, it has been observed that the REs follow divergent practices in the release of such movable and immovable property documents, leading to customer grievances and disputes," RBI said in a circular.

The RBI's directive makes it clear that REs shall release all original movable and immovable property documents and remove any charges registered with any registry within a period of 30 days after the full repayment or settlement of the loan account. Borrowers are provided with the option to collect these essential documents either from the banking outlet or branch where the loan account was serviced or from any other office of the RE where the documents are available, as per their preference, it said.

Furthermore, the timeline and place of return of original property documents, according to the central bank, will be clearly mentioned in the loan sanction letters issued on or after the effective date. Additionally, to address the unfortunate event of the demise of the sole borrower or joint borrowers, REs must establish a well-defined procedure for returning original property documents to legal heirs. This procedure will be made accessible on the websites of REs, alongside other customer-related policies and procedures.

Moreover, in situations involving the loss or damage to original property documents, either in part or in full, REs are obligated to assist the borrower in obtaining duplicate or certified copies of these documents. They must bear the associated costs and, in addition, pay the compensation as indicated. 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, totaling 60 days.

The RBI has issued these directions under sections 21, 35A, and 56 of the Banking Regulation Act, 1949, sections 45JA and 45L of the Reserve Bank of India Act, 1934, and section 30A of the National Housing Bank Act, 1987.

Alok Kumar Choudhary, managing director of State Bank of India (SBI), said banks have done their own simulation test to see the impact of the recent RBI circular on the classification of investments.

Banks tread on a thin line adjusting with guidelines while being profitable, so we are ready to comply with RBI circulars after assessing them fully, he said.

Addressing the RBI's circular on the release of property documents in personal loans, Choudhary pointed out that the metrics for conducting business have been sharpened. The RBI's guidance, he emphasized, is designed to enhance the functioning of banks and safeguard the interests of customers.

First Published:Sept 13, 2023 9:24 AM IST