RBI directs banks to release property documents within 30 days of loan repayment: Here’s how it will benefit borrowers

The Reserve Bank of India (RBI) has directed banks and other financial institutions to release all the movable and immovable property documents within 30 days of the full repayment of loans. Besides that, it has also stated that lenders will need to compensate borrowers in case of any delay in releasing the original property documents.

The lenders will be liable to pay Rs 5,000 per day to the borrower for delay in releasing the property documents beyond the stipulated period.

In its latest circular released on Wednesday, September 13, the central bank also observed that financial institutions follow divergent practices in releasing property documents, which has caused a lot of problems for the borrowers.

While the announcement has been made in connection with all the existing and new personal loans, it will include anything that involves collateral, like home loans, car loans, or gold loans.

"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," the circular read.

The directions will be applicable from December 1, 2023. Let's know how the RBI move will benefit borrowers.

How will the RBI decision help borrowers?

- Borrowers will be eligible to receive their original property documents, submitted as collateral with the banks and NBFCs, within 30 days after paying off their dues.

-  In case of delay, the borrowers will receive a compensation of Rs 5,000 for each day of delay.

- In case of loss or damage to original property documents, the financial institutions will be liable to compensate the borrowers for obtaining duplicate or certified copies. In this case, the lenders will have an additional 30-day period to complete the process.

- The timeline and the place of return of the original property documents will be mentioned in the loan sanction letter.

- Borrowers will also receive a well-laid-out procedure for the return of original documents, in case of the demise of the sole borrower or joint borrowers.

- Borrowers will also have the option of collecting the original documents either from their bank branch, or any other office of the bank where the documents are available.

Advantage for those availing home loan or property loan

Generally banks ask the home loan or the property loan applicants to submit their original property documents as collateral. However, different lenders had their own policies on returning the original property documents after loan repayment. In many cases, the borrowers also faced problems due to the delay in getting back the property papers or the damage caused to the original documents. The latest RBI directive will bring uniformity and help the borrowers, particularly those availing home loans, or loans against property, in easily receiving their property documents after repaying the loan. This move will help customers who often face delays in receiving their property documents.

In June, a RBI committee first suggested the idea that banks may have to compensate borrowers for the delay in returning the property document.