In a big relief for borrowers, the Reserve Bank of India (RBI) informed that banks and Non-Banking Financial Corporations (NBFC) have to release documents of properties and collateral mandatorily within 30 days of settling a loan. If the lenders, known as Regulated Entities (REs), fail to do so, they will have to pay ₹5,000 per day for any each day beyond the 30 day period. Along with that, the RBI has also offered some other reprives to the borrowers.
The central bank said that while the lenders are required to release all movable / immovable property documents upon receiving full repayment and closure of loan account, many banks and NBFCs are not complying with the regulations and not releasing the documents long after a loan has been repaid in full.
This is HUGE! RBI says banks and NBFCs have to release documents of properties and collateral mandatorily within 30 days!
— Deepak Shenoy (@deepakshenoy) September 13, 2023
* Have to remove encumberance within 30 days, and return docs
* Docs can be returned from any branch, not just home branch of customer
* Loan docs must… pic.twitter.com/VuLioLpuV5
The official notification issued on 13 September states, “In terms of the guidelines on Fair Practices Code issued to various Regulated Entities (REs) since 2003, REs are required to release all movable/immovable property documents upon receiving full repayment and closure of loan account. However, it has been observed that the REs follow divergent practices in the release of such movable/immovable property documents leading to customer grievances and disputes.”
The central bank issued a set of directions to address the problems faced by the borrowers and to encourage responsible lending behaviour among the REs. “The REs shall release all the original movable/immovable property documents and remove charges registered with any registry within a period of 30 days after full repayment/ settlement of the loan account.”
The RBI also announced the a fine of ₹5,000 per day in case of delay in returning the property docyments, if the lender is responsible for such delay. The notification states, “in case of delay in releasing of original movable / immovable property documents or failing to file charge satisfaction form with relevant registry beyond 30 days after full repayment/ settlement of loan, the RE shall communicate to the borrower reasons for such delay. In case where the delay is attributable to the RE, it shall compensate the borrower at the rate of ₹5,000/- for each day of delay.
The RBI also directed that the borrowers will need not come to the original branch for collection of the documents, and will have the option of collecting them from any branch of the concernbed entity. The notificaton stated, “The borrower shall be given the option of collecting the original movable/immovable property documents either from the banking outlet/branch where the loan account was serviced or any other office of the RE where the documents are available, as per her/his preference. The timeline and place of return of original movable/immovable property documents will be mentioned in the loan sanction letters issued on or after the effective date.”
As per the RBI regulation, the REs shall have a well-defined mechanism for returning original movable/immovable property documents to the legal heirs in order to meet the contingent event of the death of the sole borrower or joint borrowers. Such a procedure must be made available to customers on the REs’ website together with other similar rules and procedures.
Furthermore, the REs must help the borrower obtain duplicate or certified copies of the movable or immovable property documents and bear the associated costs in addition to paying compensation as stated above in the event of loss or damage to the original movable or immovable property documents, in whole or in part. “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 (i.e., after a total period of 60 days).”
It added, “The compensation provided under these directions shall be without prejudice to the rights of a borrower to get any other compensation as per any applicable law.”
These instructions are ordered to be followed in every situation where the release of original documents pertaining to properties is due on or after 1 December of this year. The release conveyed, “The above Directions are issued 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.”
The official document was addressed to All Commercial Banks (including Small Finance Banks and Regional Rural Banks, excluding Payments Banks), All Local Area Banks, All Primary (Urban) Co-operative Banks, All State Co-operative Banks and District Central Co-operative Banks, All NBFCs (including HFCs) and All Asset Reconstruction Companies by Santosh Kumar Panigrahy, Chief General Manager.
How the announcement will benefit the common public
The aforementioned measures are going to offer a massive relief to the general public who take loans to purchase movable and immovable properties like houses and vehicles. This will help borrowers who are homeowners as well as for collateral-based financing for things like vehicles, securities and other goods. Housing finance businesses are also covered because it applies to NBFCs as well.
Now, the banks and NBFCs would not be able to string homeowners for a long time by claiming that they lost/couldn’t find the necessary documents or would return them after 6 months, etc. especially when one has transferred home loans (need to repay the last lender to transfer a loan) and make it difficult to shift.
While borrowers are allowed to shift their loan to a different lender during the tenure of the loan, the original lender tend to block or delay such transfers by delaying the release of the documents and also by not removing the hypothecation on the property bought using the loan.
With this new regulation, borrowers would be be able to switch to a different lender easily if another lender offers you a More affordable loan. When a borrower wants to move the loan do different lender after getting a better deal like reduced inertest or better terms, the borrower needs to collect the the relevant documents from the original lender and submmit the same with the new lender. The original lender also needs to release the hypothecation on the property purchased using the loan money, so that the new lender can hypothecate it.
It is notable that RBI had already banned penalties on foreclosure/prepayment of loans. Delaying releasing documents was the only way NBFCs and banks could engage in dubious behaviour, which will come to an end with this new circular.
Borrowers also require the property documents after the full repayment of a loan for various reasons, and in such cases also this regulation will come as a mojot relief.
