Rs 5,000 fine per day! RBI orders banks, NBFCs to release property docs within 30 days of loan repayment

The Reserve Bank of India (RBI) has issued fresh directions to Regulated Entities (REs), such as banks and non-banking finance companies (NBFCs), in a bid to look into issues faced by borrowers during loan settlement. The central bank has asked banks and NBFCs to release all the original movable and immovable property documents and remove charges registered with any registry within a period of 30 days after full repayment/ settlement of the loan account. The move will come into effect on December 1, 2023.

It further said failure to comply with this directive will result in a penalty of Rs 5,000 per day for any delays in the release of these critical documents.

"In terms of the guidelines on Fair Practices Code issued to various Regulated Entities (REs) since 2003, REs are required to release all movable and immovable property documents upon receiving full repayment and closure of loan accounts. However, it has been observed that the REs follow divergent practices in the release of such movable and immovable property documents, leading to customer grievances and disputes," RBI said in a circular.

The RBI has issued these directions under sections 21, 35A, and 56 of the Banking Regulation Act, 1949, sections 45JA and 45L of the Reserve Bank of India Act, 1934, and section 30A of the National Housing Bank Act, 1987.

Here are the top points:

1.  The RBI has issued a directive requiring Regulated Entities (REs), including banks, NBFCs (including HFCs), ARCs, LABs, and Co-Op Banks, to release all original movable and immovable property documents within 30 days after the full repayment or settlement

2. The borrower will be given the option of collecting the original movable/immovable property documents either from the banking outlet / branch where the loan account was serviced or any from other office of the RE where the documents are available, as per her / his preference.

3. “The timeline and place of return of original movable/immovable property documents will be mentioned in the loan sanction letters issued on or after the effective date,” the circular said. 

4. To address the contingent event of 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.

“Such procedure shall be displayed on the website of the REs along with other similar policies and procedures for customer information,” the circular said. 

5. In case of delay in releasing of original property documents or failing to file charge satisfaction form with relevant registry beyond 30 days after settlement of loan, the RE shall communicate to the borrower reasons for such delay. 

6. However, if the delay is attributable to the RE, it shall compensate the borrower at the rate of Rs 5,000 for each day of delay, the RBI said.

7. Additionally, in case of loss or damage to original property documents, the REs shall assist the borrower in obtaining duplicate or certified copies of the property documents and shall bear the associated costs, in addition to paying compensation. 

8. In case of loss/damage to original movable/immovable property documents, either in part or in full, the REs will have to assist the borrower in obtaining duplicate/certified copies of the movable/immovable property documents and will bear the associated costs, in addition to paying compensation of Rs 5,000 per day. 

9. “However, in such cases, an additional time of 30 days will be available to the REs to complete this procedure and the delayed period penalty will be calculated thereafter (i.e., after a total period of 60 days),” the circular added.

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