RBI Directs Prompt Release of Loan Documents to Encourage Responsible Lending

RBI Directs Prompt Release of Loan Documents to Encourage Responsible Lending. Image/ AFP

In a significant move aimed at promoting responsible lending, the Reserve Bank of India (RBI) has issued a directive requiring banks and financial institutions to release all original movable or immovable property documents and remove charges registered with any registry within 30 days after full repayment of a loan by the borrower.

Compensation for Non-Compliance

The RBI notification specifies that regulated entities (REs) failing to comply with this directive will be obligated to compensate the borrower at the rate of Rs 5,000 for each day of delay. This step by the RBI addresses the existing divergent practices among lenders regarding the release of such documents, which has led to customer grievances and disputes.

Uniform Procedures for Responsible Lending

As part of the Fair Practices Code and to standardize procedures, the RBI has instructed REs to release all original movable and immovable property documents and eliminate charges registered with any registry within 30 days after the full repayment or settlement of the loan account. In cases where delays occur, the REs are required to communicate the reasons for the delay to the borrower.

Options for Borrowers

The RBI’s directive also grants borrowers the option to collect their original movable or immovable property documents either from the banking outlet/branch where the loan account was serviced or from any other office of the RE where the documents are available, based on their preference.

Clarity in Loan Sanction Letters

The timeline and location for the return of original movable or immovable property documents will be clearly stated in the loan sanction letters issued on or after the effective date of this directive.

Procedures for Legal Heirs

To address contingencies such as the demise of the sole borrower or joint borrowers, the RBI mandates that REs establish well-defined procedures for the return of original movable or immovable property documents to the legal heirs. These procedures will also be made available on the websites of REs, along with other relevant policies and procedures for customer information.

This directive by the RBI represents a significant step in streamlining lending practices, enhancing transparency, and safeguarding the interests of borrowers.

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