Collateral loans: RBI directs banks to pay ₹5,000 per day penalty for delay in returning documents

In the wake of growing complaints of borrowers who face a great distress in procuring their property documents, the Reserve Bank of India (RBI) has released a set of guidelines to give a sense of relief to consumers.

The banking regulator has released a set of guidelines to ensure that the banks release movable and immovable property documents upon payment of personal loans.

These are part of the guidelines on fair practices code issued to various regulated entities since 2003.

“The REs are required to release all movable / immovable property documents upon receiving full repayment and closure of the loan account. However, it has been observed that the regulated entities follow divergent practices in release of such movable / immovable property documents leading to customer grievances and disputes,” RBI wrote in its notification released on Wednesday.

What are the new directions?

The regulator has given a four-fold directive. First of all, the regulated entities will release all the original movable/immovable property documents and remove charges registered with any registry within a period of 30 days after full repayment/ settlement of the loan account.

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

Third, 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.

Fourth, in case of the sole borrower's demise, the bank will have a proper procedure for return of original property documents to the legal heirs. This procedure will be displayed on the website of the REs along with other similar policies and procedures.

Are there any penalties for delay?

In case the bank fails to release original property documents within 30 days after full repayment of loan, the registered entity will communicate the borrower for such delay and if the delay happened because of the registered entity, it will be supposed to compensate the borrower at the rate of ₹5,000 for each day of delay.

And in case a bank happens to lose the document in part or in full, the registered entity will assist the borrower in obtaining certified/ duplicate copies of the property documents and will bear the associated costs in addition to paying compensation.

However, in such cases additional days of 30 days will be available to the REs to complete the procedure.

When will this come into force?

These directions will be applicable to all cases where release of original property documents falls on or after Dec 1, 2023.