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RBI sets 30-day deadline for banks and NBFCs to release property documents after loan settlement

By: Gopal Agarwal

The Reserve Bank of India (RBI) on Wednesday said regulated entities have to release original property documents to retail loan borrowers within 30 days of full repayment, and any delay would attract a penalty.

This would include consumer credit, education loans, loans given to create or enhance immovable assets and loans for investment in financial assets like shares, debentures and others. RBI has set a penalty of ₹5,000 per day that banks must pay the borrower for each day of delay in returning the original documents.

The new directive is applicable to regulated entities, including banks, non-banking financial companies (including housing finance companies), asset reconstruction companies, local area banks and cooperative banks.

In its press release, RBI noted that these regulated entities have been seen to follow divergent practices in the release of such movable and immovable property documents, leading to customer grievances and disputes.

“These directions shall be applicable to all cases where release of original movable/immovable property documents falls due on or after 1 December,” RBI said.

The new regulations come after following recommendations by a central bank committee headed by former deputy governor B.P. Kanungo last year, which had proposed lenders who offer home loans should compensate borrowers and pay a monetary fine if they lose property documents.

“If borrowers want to transfer the loan to another bank, for interest reduction or an additional loan, the transferee lender only releases the outstanding amount once it receives the original document from the original bank. With delays, the additional amount will be held up,” said Aditya Agarwal – Business Head – LoanBaazar

Original property documents help in establishing ownership and facilitate future transactions. Typically, banks ask customers to deposit ownership documents as security against the loan. When there is a default, banks use such documents to transfer ownership and recover their dues.

Bankers said there are several instances when the property documents get held up.

For instance, banks have some other liability of the borrower and do not hand over the document, or the bank stores these documents in some other place. The delay is also caused when the discharge is required from several parties

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