Responsible lending

IN an initiative to ensure responsible lending, the RBI has released a slew of guidelines for various regulated entities (REs), including banks and financial institutions. Despite orders since 2003 under the Fair Practices Code to the REs to return the original documents to the customers immediately on the settlement of loans, the practice is not strictly followed. The RBI has sought to eliminate the flaws and loopholes in the policy. From December 1, the REs are mandated to return the original documents related to movable and immovable property to the customer within 30 days of the loan repayment. These directions are significant in view of the lack of clarity over the matter and divergent practices followed by the lenders. The new norms come as a relief to borrowers, who are often made to run from pillar to post, with the grievances even leading to disputes or litigation.

The RBI has stipulated that the RE would be liable to pay Rs 5,000 for each day of delay after the 30-day limit if the delay is attributed to it. In case the documents are lost, the RE would have to help the customer get a new set of papers made within 30 days and bear 50 per cent of the cost thereof. Recognising another point that may lead to the customer’s harassment, the RBI has directed that a proper procedure be laid down for returning documents to the legal heirs in case of the demise of the borrower.

In May, RBI Governor Shaktikanta Das had cautioned banks against aggressive growth strategies and the evergreening of loans as they lead to a rise in non-performing assets (NPAs). In loan evergreening, banks save borrowers from defaulting by giving them another loan so that bad loans do not appear as NPAs in the books. Das must be applauded for his efforts to plug the gaps in bank governance practices.