RBI Cracks Down on Property Document Delays, Protects Borrowers' Rights

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The Reserve Bank of India (RBI) announced that regulated institutions are required to furnish the original property documents to borrowers of retail loans within 30 days of full repayment. Any failure to meet this deadline will result in the imposition of a penalty. This directive encompasses various loan types, such as consumer credit, education loans, loans for property development or enhancement, as well as loans for investment in financial assets like shares and debentures. RBI has stipulated a penalty of ₹5,000 per day, which banks must compensate borrowers for each day of delay in returning the original documents.

These new guidelines are applicable to a range of regulated entities, including banks, non-banking financial companies (including housing finance companies), asset reconstruction companies, local area banks, and cooperative banks. RBI highlighted in its press release that these regulated entities have exhibited inconsistent practices in releasing both movable and immovable property documents, resulting in customer complaints and disputes.

RBI clarified, "These directives will apply to all cases in which the release of original movable/immovable property documents is due on or after December 1st." These regulations have been introduced following recommendations from a central bank committee chaired by former deputy governor B.P. Kanungo last year. The committee had proposed that lenders providing home loans should compensate borrowers and pay a monetary penalty if they misplace property documents.

D.S. Tripathi, executive vice-chairman of Aadhar Housing Finance, explained, "In cases where borrowers wish to transfer their loan to another bank, either to reduce interest rates or obtain additional financing, the new lender will only release the outstanding amount once it receives the original documents from the original bank. Delays in this process can lead to a holdup in accessing the additional funds."

Original property documents are crucial for verifying ownership and facilitating future property transactions. Typically, banks require customers to submit these documents as collateral when obtaining a loan. In cases of default, banks use these documents to transfer ownership and recover their outstanding dues. Bank officials have cited various reasons for document delays, including the bank's existing liabilities with the borrower, document storage issues, or the need to obtain discharge from multiple parties.