Aparna Ramachandra, Founder Director, rectifycredit.com, says the RBI directive has made clear that after closing a loan, if the bank does not return the papers in 30 days, they will have to start paying the fine. Also, if banks have misplaced or damaged the documents while in their custody, then they will have to make sure that alternate arrangements are done and the borrower gets the papers.
RBI has asked banks, NBFCs to release original movable, immovable property documents within 30 days of full repayment of loan. Could you help us understand the various things involved in this particular decision that RBI has taken? Also what triggered this directive?
This is an excellent initiative and a long-awaited one from RBI. There were a lot of people and entities who were really following this up with RBI because this is like a systemic cleansing, putting these things in perspective because when you apply for a loan, the bank is very particular and very clear as to what are the documents it requires without which it will not disburse the loan. So, a similar professional attitude and practice has to set in when the loan closure happens. Ideally, once the whole repayment is done, within seven days, an NOC needs to be issued which is saying that and a closure letter which says that the bank has closed this loan and it has no objection that this loan is closed. So, this is point number one.
Point number two, subsequent to this, if there are any mortgage papers, then the bank needs to release those papers. It need not sit on those papers because the loan is closed. Now, what triggered this was in the last two to three years if you see, there was the first series of interest rates going down. So, a lot of people went ahead and did balance transfers. They moved their loans from one bank account to the other where they were getting a lower interest rate. There were also cases where no processing fee was there. There were a lot of other benefits. The borrower deemed it fit to shift from one bank to the other.
So, the original bank, because it could not do anything else, had a tendency to just sit on those papers and not give those papers on time. So, what happened in the bargain? The borrower lost out on that opportunity because he could not submit the papers. So, because of no choice, they had to come back and stick to the original bank. This was one thing.
The second important thing in this whole directive that RBI has given is equally important. If for any reason, these original documents have been lost or damaged by the bank during the tenure that the papers were with the bank, getting duplicate copies or assistance in getting those originals certified is part of the bank’s responsibility.
I think this is an equally excellent initiative because there have been an umpteen number of horror stories, where you have given documents to the bank and then the bank is so callous and just irresponsible and says humne guma diya hai, ya humare locker mein flood aa gaya aur chuhe kha gaye (we have lost it or our lockers got flooded or it was devoured by rats). Then what does the borrower do? So, this was completely unacceptable. So, the RBI directive is an excellent thing.
So, part one, if the bank does not return the papers in 30 days, they will have to start paying the fine. Part two, if you have taken the documents but while during the custody of those papers, if the banks misplaced or damaged them, then they will make sure that alternate arrangements are done and the borrower gets the papers.
From which date will this be implemented and what are the borrower’s rights that they need to know?
No date has been given in the directive but I am assuming it should start ASAP, maybe by October or so. Secondly, one thing RBI is saying is that the bank is responsible for returning your papers, but it is the borrower’s responsibility also to have that list of documents that they have submitted to the bank while taking the loan and to have a copy of that because we at rectifycredit have also seen borrowers who come to us and say we do not have the original paper, but I also do not know what I had given.
Sometimes there are insurance certificates, there are other collaterals you have given apart from the property papers. So, it is very important to keep a copy of the list of the documents that you have submitted. This is as far as the borrower’s responsibility is concerned.
As far as the borrower’s right is concerned, it is very important that as soon as the payment gets cleared, if I am paying the entire amount by cheque, then once the cheque gets cleared, if that loan is being taken over by another bank, then if that X bank makes the payment to the Y bank on that particular day, you have to be make sure to get a closure letter because on the basis of this closure letter your bureau updation happens. It is very important that you first collect the closure letter. Within seven working days, the lending bank is supposed to give you a no objection certificate, NOC, which if you have taken a subsequent loan, you have to go and submit there. Otherwise, if you closed it, you keep that copy.
Thirdly, make sure that the original bank from where you closed the loan or transferred that loan, gets updated with the credit bureaus as properly closed from that particular date. These are your three rights as a borrower. If this is not happening, then there are enough and more avenues wherein you can raise a complaint or submit your grievance and get this rectified.
