The Reserve Bank of India (RBI) recently introduced revised norms that mandate lenders to return original property documents to borrowers within 30 days of complete loan repayment. Failure to do so will result in a penalty of Rs 5,000 per day, payable by the lender to the borrower. These norms, applicable to various regulated entities including banks and non-banking financial companies (NBFCs), are set to take effect from December 1, 2023.
Understanding the Revised Norms
The key aspect of these revised norms is the requirement for lenders to promptly return original documents submitted by borrowers once the loan has been fully repaid. Delays in doing so will incur a penalty. For instance, if a lender fails to return documents within 10 days after the 30-day period, they will owe the borrower a penalty of Rs 50,000.
The Need for Change
The RBI’s move stems from observations that different lenders followed varying practices when it came to releasing property documents. Such discrepancies led to customer grievances and disputes, prompting the central bank to step in.
Not a Novel Idea
This idea of compensating borrowers for lost property documents is not entirely new. Earlier, the BP Kanungo Committee, set up by the RBI, proposed that banks and lenders should be liable for monetary fines if they misplaced borrowers’ property documents. Typically, lenders request and hold onto these documents until the loan is fully repaid, which also helps reduce the risk of potential disputes or fraud.
Impact on Banks
Experts note that there have been cases in the past where lenders lost borrowers’ original documents, causing financial and logistical difficulties for borrowers. The new RBI directive is expected to make lenders more cautious, as they now face a financial burden in the form of penalties if they fail to promptly return these essential documents. This change aims to enhance transparency, accountability, and customer service standards in the lending industry.
In summary, the RBI’s revised norms represent a significant step towards safeguarding borrowers’ rights and streamlining lending practices. Borrowers can now expect a smoother process for retrieving their property documents upon loan repayment, while lenders must adhere to strict timelines or face financial consequences