[Analysis] Streamlining Processes | RBI Issues Directions for Swift Release of Property Documents Post-loan Closure

Table of Contents

1. Introduction
2. REs must release all property documents and charges within 30 days post full loan settlement
3. RBI mandates mentioning the timeline and place of return of original property documents in loan sanction letters
4. REs must compensate for the delay in release of Movable/Immovable Property Documents
5. REs must assist borrowers in obtaining duplicate/certified copies in case of loss/damage to original property documents
6. Conclusion

1. Introduction

The ‘Fair Practice Code’ has been the guiding light for Regulated Entities (REs) since its inception in 2003, emphasizing that upon the full repayment and closure of a loan account, REs are obligated to furnish all movable and immovable property documents.
However, recent observations by the RBI have uncovered disparities in these practices, causing customer grievances and disputes. To tackle these issues head-on and instil responsible lending practices among REs, the RBI vide Circular No¹. dated 13.09.2023 has unveiled a set of fresh directives.

These directives provide comprehensive guidance to REs regarding the release of movable/immovable property documents upon the repayment or settlement of personal loans. These directives shall apply to all cases where the release of original movable/immovable property documents falls due on or after December 1, 2023.

2. REs must release all property documents and charges within 30 days post full loan settlement

The Regulated entities (REs) are required to release all the original movable/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.

Additionally, the borrowers must be given the option of collecting the original documents pertaining to movable or immovable property from either the bank branch where the loan account was managed or any other office of the RE where the documents are available, based on their preference.

Impact

These directives ensure that borrowers have timely access to their property documents and empower them to select a convenient retrieval location, promoting transparency and ease of transactions within the lending sector. This fosters improved borrower satisfaction and trust in REs.

3. RBI mandates mentioning the timeline and place of return of original property documents in loan sanction letters

The timeline and place of return of original movable/immovable property documents will be specified in the loan sanction letters issued on or after the effective date.

Further, in order to address the contingent event of the demise of the sole borrower or joint borrowers, the REs must have a well-laid-out procedure for the return of original movable/immovable property documents to the legal heirs.

Impact

These directives bring clarity and convenience by specifying property documents return details in loan sanction letters, enhancing transparency. Additionally, by establishing a procedure for property document transfer to legal heirs, in case of borrower demise, ensures smoother transitions and bolsters customer trust.

4. REs must compensate for the delay in release of Movable/Immovable Property Documents

If there is a delay in releasing the original movable or immovable property documents or if the charge satisfaction form is not filed with the relevant registry within 30 days after the full repayment or settlement of the loan, the REs must communicate to the borrower the reasons for the delay.

Further, if the delay is attributable to the REs, it must compensate the borrower at a rate of Rs 5,000 for each day of delay.

Impact

These directives prioritize transparency, ensuring borrowers are promptly informed about any delays and establishing accountability by compelling REs to compensate borrowers for delays caused by the REs themselves, ultimately enhancing borrower trust and satisfaction with the industry ’s regulatory guidelines.

5. REs must assist borrowers in obtaining duplicate/certified copies in case of loss/damage to original property documents

In the event of loss or damage to the original documents pertaining to movable or immovable property, whether partially or entirely, the REs must provide support to the borrower in obtaining duplicate or certified copies of these documents.

Furthermore, the REs shall bear the associated costs, in addition to paying the compensation outlined above. However, in such instances, the REs will have an additional 30 days to complete this process and the delayed period penalty will be calculated thereafter (i.e. after a total period of 60 days).

Impact

These directives establish a safety net for borrowers in the event of property document loss or damage, ensuring they receive support, cost coverage, and timely resolution.

6. Conclusion

In conclusion, these directives represent a significant stride towards ensuring fair and transparent lending practices. By establishing a clear and standardized procedure for the release of movable and immovable property documents upon loan repayment or settlement, the RBI aims to not only address customer grievances and disputes arising from inconsistent practices among regulated entities (REs) but also enhance the overall customer experience.

These directions will play a key role in reducing grievances and disputes, promoting responsible lending, ensuring transparency, providing financial compensation for delays, etc., all contributing to a more robust and equitable financial landscape.

1. Circular No. RBI/2023-24/60 DoR.MCS.REC.38/01.01.001/2023-24, Dated: 13.09.2023