The Reserve Bank of India (RBI) could levy penalties on banks for the loss of property documents that were pledged with them by borrowers if a recommendation by the high-level committee under former deputy governor BP Kanungo is accepted. Recently, the committee to review customer service standards in banks and other regulated entities submitted its report.
In a report, IANS says, "The panel has suggested that RBI may 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 or compensation linked to the extent of delay should automatically be paid by the banks 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.
Readers would recall that this was a suggestion made by Moneylife Foundation in its representation to the Kanungo Committee. The Foundation pointed out the absence of standard operating procedures (SOPs) and a lack of penalties for banks, even when customer issues are handled poorly.
Earlier, we pointed out that if documents establishing the chain or ownership are lost, it permanently impairs the value of the property, even if true copies are obtained. In fact, some banks themselves refuse loans against such property; however, affected property owners have never been compensated (Read: Lost Property Documents Permanently Damage Asset Values: Regulatory Solution Required for Fair Deal to Borrowers)
RBI has noted these concerns in the report. In present circumstances, there is no directive or circular from the RBI which provides a clear, time-bound process to be followed by a lender who misplaces or loses a property document. Every victim is instead pushed through a harrowing process of fighting a legal battle.
The Kanungo committee submitted its report to RBI in April. The central bank has invited comments from stakeholders by 7th July on the committee's recommendations.
The panel has suggested that RBI may 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 the banks should automatically pay a penalty or compensation linked to the extent of delay 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," the panel has suggested.
Usually, banks obtain original property documents from borrowers and keep them in custody until the loan is fully repaid. A simple Google search shows that a lender losing key documents pledged with it, is not uncommon. The numbers are small enough to fly below the radar of regulators, but victims end up fighting legal battles for redress. Also, lost or misplaced property documents are not limited to home loans; lenders have lost documents pledged with them for education loans and commercial loans.
RBI has received several complaints that banks take a lot of time to return property documents even when the loan was repaid on time.
In February this year, holding IDBI Bank Ltd responsible for not returning all original title documents of the flat entrusted to them by the home-buyers, the National Consumer Disputes Redressal Commission (NCDRC) asked the lender to pay Rs20 lakh compensation, Rs1 lakh towards mental agony and harassment and Rs50,000 litigation expenses.
"The claim of the complainant is based on their estimation of the market value of their flat, which cannot be faulted since original title documents have a sine quo non for any transaction pertaining to the sale or purchase of the real estate. The claim for compensation and mental agony and harassment is, therefore, valid and justified," NCDRC had said.
Original property documents are essential, as they help establish ownership and prevent disputes. In addition to this, these documents are also helpful in facilitating future transactions and in other property-related matters. Ownership documents, like title deeds, serve as legal validation of one's property ownership.
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