MC Explains: Understanding RBI's revised norms on lenders releasing original property documents to borrowers

RBI Governor Shaktikanta Das

The Reserve Bank of India (RBI), on September 13, released revised norms under which lenders have to release original property documents to borrowers within 30 days of full repayment of a loan. Failing to do so will attract a penalty of Rs 5,000 per day, which the lender would have to pay to the borrower, the RBI said.

The norms are applicable to regulated entities (REs), including banks and non-banking financial companies (NBFCs), including housing finance companies (HFCs), asset reconstruction companies (ARCs), local area banks (LABs), and cooperative banks.

The central bank's revised norms for lenders shall be applicable from December 1, 2023.

But how will these revised norms work and impact banks? Here is an explainer.

What are the revised norms?

The central bank's revised norms say that lenders have to return the original documents submitted by the borrowers within 30 days of full repayment of the loan.

Here, a delay in returning the document would result in a penalty for the lenders. The RBI has decided that the penalty will be Rs 5,000 per day.

For instance, if a lender fails to return the documents to the borrower for 10 days after the 30-day period, the lender will have to pay a penalty of Rs 50,000 to the borrower.

Why now?

The central bank said that it has brought in these norms after it observed that some lenders follow divergent practices in the release of such documents, leading to customer grievances and disputes.

"It has been observed that the REs follow divergent practices in the release of such movable/ immovable property documents, leading to customer grievances and disputes," the RBI said.

Is this something new?

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, 2023, which outlined various suggestions for enhancing customer service standards in regulated entities.

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

How will this impact banks?

Experts said that in the past, there have been cases where lenders have lost the original documents of the borrowers, due to which the borrowers have had to face financial and other difficulties.

"There have been cases where documents were damaged or lost due to heavy rain or other reasons. This puts the burden on the borrowers as they have to run around to get the documents," said Saurabh Bhalerao, Associate Director, Care Ratings.

Hence, the central bank's new directive will bring in cautiousness among lenders, as they will face a financial burden if they fail to return the documents, Bhalerao said.