RBI may levy penalties on banks that lose borrowers’ property papers

June 12, 2023: Banks might have to pay compensation to borrowers in case they misplace their property documents if the Reserve Bank of India (RBI) accepts the recommendations of the high-level panel.

For the uninitiated, banks keep the original property documents with them at the time of giving a home loan. These papers are returned to the borrower only after they have repaid the loan in its entirety.

According to the BP Kanungo panel, set up in May 2022, to review customer service standards in RBI-regulated entities, “several instances were brought to the notice of the committee where banks had misplaced the property documents taken by them as security for a loan and failed to return the documents/return them promptly when the loan was fully repaid by the borrower”.

“It was also observed that the banks follow different practices with regard to safe-keep of property documents accepted by them as security. While some keep them at the branch, others keep them with controlling offices, yet others at head offices. Failure to return the documents in time causes avoidable hardship to the borrower and can even lead to pecuniary loss,” it observed.

The panel has recommended that the Reserve Bank might consider stipulating a time limit for banks to return the property documents to the borrower from the date of closure of the loan account, failing which a penalty/compensation linked to the extent of delay should automatically be paid by the bank to the borrower. In case of loss of property documents, the bank should not only be obligated to assist in obtaining certified registered copies of documents at their cost but also compensate the customer adequately, keeping in view the time taken to arrange the alternate copies of the documents, it says.

Keeping the security documents by the banks in digi-lockers may be encouraged as this will facilitate easy retrieval in case the physical documents are misplaced, the panel has recommended.