Protecting Borrowers’ Rights and Promoting Transparency
Safeguarding borrowers’ interests and enhancing transparency in the lending industry, the Reserve Bank of India (RBI) has issued a significant directive regarding the release of movable and immovable property documents upon the full repayment or settlement of personal loans. Effective from December 1, 2023, these guidelines represent a crucial step toward creating a more accountable and transparent lending process.
Key Provisions of the RBI Directive 1. Prompt Release of Property Documents: According to the RBI’s guidelines, regulated entities (REs) are now mandated to release all original movable and immovable property documents within 30 days after the complete repayment or settlement of a loan account. This provision ensures that borrowers regain ownership of their assets promptly.
2. Borrower’s Freedom of Choice: Borrowers have the flexibility to collect their original property documents either from the branch where the loan account was serviced or from any other office of the RE where the documents are available, based on their preference. This added convenience enhances the borrower’s experience.
3. Transparency in Loan Sanction Letters: The RBI emphasizes the importance of transparency by requiring REs to specify the timeline and location for returning original property documents in loan sanction letters issued on or after the effective date. This clarity ensures that borrowers are aware of the process.
4. Rights of Legal Heirs: In cases of a borrower’s demise, the RBI mandates that REs have a welldefined procedure for returning property documents to legal heirs. This procedure must be readily accessible on the REs’ websites, promoting transparency and customer awareness.
5. Compensation for Delays: To discourage delays in the release of property documents, the RBI introduces compensation measures. If REs fail to release documents or file charge satisfaction forms within 30 days, they must communicate the reasons for the delay to the borrower. In cases where the RE is responsible for the delay, they must compensate the borrower at the rate of Rs 5,000 per day of delay.
6. Loss or Damage to Documents: In the unfortunate event of loss or damage to the original property documents, either partially or entirely, REs must assist the borrower in obtaining duplicate or certified copies. The REs will bear the associated costs and pay compensation as mentioned in paragraph 5. However, they are granted an additional 30 days to complete the process.
7. Additional Legal Rights: The compensation provided under these directives does not affect a borrower’s rights to seek further compensation as per applicable laws.
8. Applicability: These directions shall be applicable to all cases where the release of original movable and immovable property documents falls due on December 1, 2023, and after that date.
A Boost for Borrower’s Rights This RBI directive signifies a significant step toward improving transparency and customer awareness in the lending industry. Its effective date, starting from December 1, 2023, aims to protect borrower’s interests and ensure a smoother and more accountable lending process. It has been observed that REs have followed divergent practices in the release of such movable and immovable property documents, leading to customer grievances and disputes. To address the issues faced by borrowers and promote responsible lending conduct among REs, the RBI has issued these comprehensive instructions.
Promoting Responsible Lending Conduct Despite orders dating back to 2003 under the Fair Practices Code, which directed REs to return original documents to customers immediately upon the settlement of loans, the practice was not strictly followed. The RBI has now sought to eliminate the flaws and loopholes in the policy, ensuring that borrowers’ rights are protected.
Clarity and Protection for Borrowers This notification holds significant importance from the customer’s perspective, as it effectively addresses several longstanding concerns and provides much-needed clarity and protection. These measures collectively provide substantial relief to customers and are in alignment with the government’s overarching goal of implementing user-friendly guidelines.
The inclusion of specific instructions for doorstep service delivery underscores a commitment to making processes more accessible and convenient for customers. Ultimately, these actions by the RBI are pivotal in nurturing stronger and more trusting relationships between customers and financial institutions.
A Step Toward Governance and Customer-Friendly Policies In May, RBI Governor Shaktikanta Das cautioned banks against aggressive growth strategies and the evergreening of loans, which could lead to a rise in non-performing assets (NPAs). In loan evergreening, banks save borrowers from defaulting by giving them another loan so that bad loans do not appear as NPAs in the books.
Governor Das must be applauded for his efforts to plug the gaps in bank governance practices. It is expected that such steps will continue in the future, with a focus on implementing customer-friendly policies that prioritize transparency and borrower protection.
(The views expressed above are the author’s own. They do not necessarily reflect the
