RBI directs release of property documents after loan payment

The Reserve Bank of India (RBI) has issued directives to financial institutions, including banks, non-banking finance companies (NBFCs), housing finance companies (HFCs), and asset reconstruction companies (ARCs), regarding the release of movable and immovable property documents following the full repayment or settlement of loan accounts. These directives are part of RBI's circular on Responsible Lending Conduct – Release of Movable/Immovable Property Documents on Repayment/Settlement of Personal Loans. The move comes in response to divergent practices followed by lenders in the release of property documents, which have led to customer complaints and disputes.Key directives outlined in the circular include:1. Timely Release of Documents: Lenders are required to release all original movable and immovable property documents and remove charges registered with any registry within 30 days after the full repayment or settlement of the loan account.2. Timeline Mention in Sanction Letters: The timeline and place for the return of original property documents should be clearly mentioned in the loan sanction letters issued on or after the effective date of the circular.3. Borrower's Preference: Borrowers should be given the option to collect the original property documents either from the branch where the loan account was serviced or from any other office of the financial institution where the documents are available, according to their preference.4. Procedure for Deceased Borrowers: Financial institutions must establish a well-defined procedure for returning original property documents to the legal heirs in the event of the demise of the sole borrower or joint borrowers. This procedure should be made available on the institution's website for customer information.5. Compensation for Delay: In cases where there is a delay in releasing the property documents or filing a charge satisfaction form with the relevant registry beyond 30 days after full repayment or settlement of the loan, the financial institution must communicate the reasons for the delay to the borrower. If the delay is attributable to the institution, it must compensate the borrower at the rate of ₹5,000 for each day of delay.6. Loss/Damage to Documents: In the event of loss or damage to the original property documents, either in part or in full, the financial institution should assist the borrower in obtaining duplicate or certified copies of the documents and bear the associated costs, in addition to paying compensation. An additional 30 days will be allowed for this procedure, and the delayed period penalty will be calculated thereafter (a total period of 60 days).7. Rights of Borrowers: RBI emphasized that the compensation provided under these directions will not prejudice the borrower's rights to seek additional compensation as per applicable laws.These directives will be applicable to cases where the release of original movable or immovable property documents is due on or after December 1, 2023. The RBI's aim is to standardize and streamline the process of releasing property documents to borrowers, ensuring transparency and timely action by financial institutions.Keywords: