Insights by: Shammi Khanna & Jaydeep Saha
Introduction
The Reserve Bank of India (RBI) directed banks, Non-Banking Finance Companies (NBFCs) and Asset Reconstruction Companies (ARC) by issuing a notification vide no. RBI/2023-24/60 dated September 13, 2023, on responsible lending conduct: release of movable/immovable property documents on repayment/settlement of personal loans.Theseguidelines are aimed at ensuring responsible lending practices among various financial institutions. These guidelines specifically pertain to the release of movable and immovable property documents upon the full repayment or settlement of personal loans. The objective is to standardize the procedures followed by different Regulated Entities (REs) to enhance customer satisfaction and minimize disputes.
Background
Historically, the RBI has prescribed Fair Practices Code guidelines since 2003 for REs. These guidelines mandate the release of all movable and immovable property documents upon the complete repayment and closure of a loan account. However, inconsistencies in the implementation of these guidelines have led to customer grievances and disputes. To rectify this, the RBI has issued the following guidelines:
Release of Movable/Immovable Property Documents
- Timely Release: REs are now obligated to release all original movable and immovable property documents and remove any registered charges within 30 days after the full repayment or settlement of the loan account.
- Flexibility for Borrowers: Borrowers have the option to collect their original documents either from the branch where the loan was serviced or from any other RE office where the documents are available, based on their preference.
- Information in Loan Sanction Letters: The loan sanction letters issued on or after the effective date of these guidelines will specify the timeline and location for the return of the original movable and immovable property documents.
- Procedures for Legal Heirs: In cases where the sole borrower or joint borrower passes away, REs must have well-defined procedures for returning the original documents to the legal heirs. These procedures should be made available on the Res’ websites for customer information, along with other relevant policies.
Compensation for Delay
- Communication of Delay: If there is any delay in releasing the original movable or immovable property documents or in filing the charge satisfaction form with the relevant registry beyond the stipulated 30 days after full repayment or settlement of the loan, the RE must inform the borrower about the reasons for the delay.
- Compensation: If the delay is attributable to the RE, it shall compensate the borrower at a rate of ₹5,000 per day of delay.
- Loss or Damage to Documents: In cases where the original movable or immovable property documents are lost or damaged, either partially or entirely, the REs are obligated to assist the borrower in obtaining duplicate or certified copies of these documents. Additionally, the REs must bear the associated costs and provide compensation as mentioned above. However, an additional 30-day period is allowed for the REs to complete this process before the delayed period penalty is calculated, resulting in a total period of 60 days.
- Legal Rights: It’s important to note that the compensation provided under these guidelines does not affect a borrower’s rights to seek additional compensation under any applicable law.
Applicability
These guidelines shall apply to all cases where the release of original movable or immovable property documents is due on or after December 1, 2023.
Legal Basis
These guidelines are issued under the following Sections:
- 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.
Conclusion
These RBI guidelines are a significant step towards ensuring responsible lending practices among financial institutions. They aim to provide borrowers with clarity, efficiency, and compensation in cases of delays or losses regarding their movable and immovable property documents, ultimately fostering a more transparent and customer-centric lending environment.
