The Reserve Bank of India (“RBI”) vide notification dated September 13, 2023 has issued directions under the Banking Regulation Act, 1949, Reserve Bank of India Act, 1934 and National Housing Bank Act, 1987 pertaining to ‘Responsible Lending Conduct – Release of Movable/ Immovable Property Documents on Repayment/ Settlement of Personal Loans’ (“Directions”). 

The RBI noted that despite the Fair Practices Code issued to various Regulated Entities (“REs”) specifying that REs are required to release all movable/ immovable property documents upon receiving full repayment and closure of loan account, REs follow divergent practices while releasing property documents, leading to unnecessary delays and customer grievances and disputes. To address this issue and promote responsible lending conduct among REs, RBI has issued the following directions which shall be applicable to all cases where release of original movable/ immovable property documents falls due on or after December 1, 2023:

(a) The REs shall release all the original property documents and remove charges registered with any registry within a period of 30 (thirty) days after full repayment and settlement of the loan account, with the borrower being given the option of collecting the original property documents either from the banking outlet/ branch where the loan account was serviced or any other office of the RE where the documents are available, as per their preference.

(b) The timeline and place of return of the original property documents should be mentioned in the loan sanction letters issued on or after the effective date.

(c) In case there is a delay in releasing the original property documents or the RE fails to file charge satisfaction form with relevant registry beyond 30 (thirty) days after full repayment/ settlement of loan, the RE shall communicate the reasons for the same to the borrower. If the delay is attributable to the RE, it shall compensate the borrower at a rate of Rs. 5,000/- (Rupees five thousand) per day for each day of delay.

(d) In case of loss or damage to original property documents, the REs shall lend their assistance to the borrower in obtaining duplicate/certified copies of the property documents and shall bear the associated costs, in addition to compensating the borrowers for the delay. However, in such cases, an additional 30 (thirty) days will be available to the REs to complete the procedure and penalty for delay will only be calculated thereafter.

(e) In order to address the contingent event of the demise of the sole borrower or joint borrowers, the REs shall display on their website, a well-laid-out procedure for the return of original property documents to the legal heirs of the borrowers. 

Please find a copy of the Directions, here.

This update has been contributed by Nidhi Arya (Partner) and Ayushi Jain (Associate).

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