Mumbai: In a major relief for home loan and other personal loan borrowers, RBI has issued stringent guidelines for lenders to ensure that they return property documents immediately after a loan is repaid.

The Reserve Bank of India (RBI) has directed lenders to release property documents upon repayment of a personal loan within 30 days. Failing to do so will require lenders to compensate the borrower at Rs 5,000 per day. Banks and finance companies have also been instructed to ensure that the documents are available at the branch where the loan was serviced or at another office of the lender, depending on the borrower's preference.

Moreover, if there is any loss or damage to the original property documents (partially or fully), lenders must assist the borrower in obtaining duplicate or certified copies and bear the associated costs. However, in such cases where documents need to be replaced for loss or damage, lenders have an additional 30 days to complete the procedure, and the penalty for the delay will be calculated after 60 days.

The RBI has issued the directions under responsible lending conduct guidelines which apply to all institutions including banks, cooperative banks, non-banking finance companies and housing finance companies.

The new rules will come into effect for all cases where the release of documents falls due on or after December 1, 2023. This gives banks a little over two months to get their logistics and IT systems in place to ensure there is proper communication and process for releasing documents. Most banks transfer records to a centralised processing centre which is often far away from the branch.

A senior banker said that ensuring documents are available at the sanctioning branch would be a challenge as many branches do not have the file management system and the documents would have to be returned to the regional storage facility if the borrower does not turn up on the appointed day. Banks said that they may have to rejig IT systems so that the regional center receives the communication to release the documents.

The RBI said lenders follow varying practices in releasing movable/immovable property documents, resulting in customer grievances and disputes. The regulator has introduced these new rules to address borrowers' issues and promote responsible lending conduct among regulated entities.

In the future, lenders will be required to specify in their sanction letters when and where the original property documents will be returned. Lenders must also establish a clear procedure for returning property documents to legal heirs in the event of the borrower's demise. This procedure must be published on the lender's website, along with other relevant policies.

If there is a delay in releasing the property documents or in filing charge satisfaction forms with the relevant registry beyond 30 days after full repayment, the lender must inform the borrower of the reasons for the delay. If the delay is attributable to the lender, they must compensate the borrower at a rate of Rs 5,000 per day of delay.