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Responsible Lending Conduct – Time bound release of Property Documents on loan closure

Co-authored by Manav Raheja, Co-authored by Jhinook Roy (Partner) and Swasti Patoria (Associate) Potnis, Hriday Chokshi and Samarth Srivastava

The Reserve Bank of India has recently introduced directions on 13th September 2023 to streamline practices by all Commercial Banks (excluding Payments Banks), Local Area Banks, Primary (Urban) Co-operative Banks, State Co-operative Banks, District Central Co-operative Banks, Non-Banking Financial Companies and Asset Reconstruction Companies (collectively, “REs”), for release of original property documents (movable / immovable property) upon receiving full repayment or closure of personal loan accounts. These directions will apply in all cases where release of original property documents falls due on or after 1st December 2023.

The key aspects of these directions, issued for responsible lending conduct, are listed below:

1. Timeline for Release: REs shall release all original property documents and remove charges registered with any registry within 30 (thirty) days after full repayment/settlement of the loan account. In case of failure to release original documents or file charge satisfaction form within the aforementioned time limit, REs shall communicate the reasons for such delay to the borrower. If such delay is attributable to the RE, it shall compensate the borrower at the rate of INR 5000 (Indian Rupees Five Thousand) for each day of delay.

2. Loss/damage of original property documents: In case of loss or damage to any part of the original property documents, REs shall assist the borrower in obtaining duplicate/certified copies of such documents and shall bear the cost thereto in addition to the compensation laid out above. In such cases, an additional time of 30 (thirty) days will be available to REs, and the delayed period penalty will be calculated after this additional period of 30 (thirty) days has expired.

3. Place of return: The borrowers will have an option to collect the original property documents either from the banking outlet / branch where the loan account was serviced or any other office of the RE where these documents are available.

4. Procedure for collection by legal heir: In respect of the event of demise of sole or joint borrower(s), the REs shall lay down a procedure for return of the original property documents to the legal heirs and display the same (along with other similar policies and procedures for customer identification) on their website.

5. Specification in sanction letter: The timeline and place of return of original property documents are required to be specified in the relevant loan sanction letters issued on or after the effective date.

6. Saving of other rights: Compensation under these directions will not prejudice the rights of borrower to get any other compensation under any applicable law.

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