Lenders must return all papers to borrowers on repayment, or face penalty: RBI

As per the central bank, banks need to pay Rs 5000 per day to the borrower for each day of delay.

The Reserve Bank of India (RBI) on September 13 said regulated entities have to release original property documents to borrowers within 30 days of full repayment of loan and a default would attract a penalty.

The regulator has set the penalty for banks at the rate of Rs 5,000 a day to the borrower for each day of delay.

The new directive is applicable on regulated entities (REs), including banks, NBFCs (including HFCs), asset reconstruction company (ARC), local area banks (LABs) and cooperative banks. "These directions shall be applicable to all cases where release of original movable/immovable property documents falls due on or after December 1, 2023," the central bank said.

Earlier, the BP Kanungo committee set up by the RBI, had proposed that banks and lenders who provide home loans should compensate borrowers and pay a monetary fine if they lose the borrowers' property documents. Typically, banks and lenders request original property documents and retain possession of them until the loans are fully repaid.

These recommendations were included in a committee report released on June 5, which outlined various suggestions for enhancing customer service standards in regulated entities.

Also read: RBI panel suggests penalty for home loan providers on loss of borrowers' documents

Original property documents play a crucial role in establishing ownership, preventing disputes, facilitating future transactions, complying with legal requirements, and accessing property-related information. Ownership documents, such as the title deed, serve as irrefutable proof and legal validation of one's property ownership.

Holding these documents in their original form also reduces the risk of potential disputes or fraud in the future, the central bank had said.