While the RBI's guidelines aim to streamline the loan closure process, borrowers must remain proactive.
The Reserve Bank of India recently issued new guidelines for standardising lending practices among banks, non-banking financial companies (NBFCs), and other regulated entities (REs).
The directives address issues faced by borrowers, specifically the prompt release of property documents once a loan is repaid.
According to these guidelines, lenders must return all original property documents held as collateral within 30 days following the complete repayment of a loan.
A RE will have to compensate a borrower at the rate of Rs 5,000 for every day of delay.
Explaining why the guidelines have been issued, Jay Thacker, member, Association of Registered Investment Advisors (ARIA), says: "There is inconsistency in adherence to RBI's Fair Practices Code, which has resulted in customer complaints and disputes."
Loan closure
After paying the last equated monthly instalment (EMI), borrowers need to send a written letter to the lender requesting the closure of their loan accounts and the return of collateral documents.
"If you need additional documents, such as invoices or detailed statement of account, make a specific request. Such records could come in handy in the future," says Adhil Shetty, CEO, Bankbazaar.com.
A lender will process the closure request and return all the original documents, usually within 7 to 10 working days.
Make sure that all the documents you submitted at the time of taking the loan are returned.
"Some of these documents include the sale deed, title deed, loan agreement, and power of attorney," says Raj Khosla, founder and managing director, MyMoneyMantra.com
Other documents include a final statement, possession letter, a No Objection Certificate (NOC), and other correspondence related to loan closure.
Raoul Kapoor, co-CEO of Andromeda Sales and Distribution, says that after obtaining all documents, you should store them in a secure location.
It is also advisable to make duplicates and digital copies.
Before signing an acknowledgement receipt, customers should verify in a bank official's presence that all pages in a document are intact.
NOC
The NOC, also known as a closure letter, is a legal document that verifies a loan has been fully paid.
"It is essential for legal purposes and to establish clear ownership of the property." Kapoor suggests asking the lender for a final statement that details all the payments made towards the loan: Principal, interest, and other charges.
"The NOC should mention the property details (like address), the borrower's name, home loan account number, loan starting and closure date, and amount borrowed and repaid. It should also mention that all the dues have been paid and the property is debt-free," says Shetty.
Establish clear title
It's essential to possess a clear title: One that is free of liens or levies from creditors.
"Possessing a clear title improves your bargaining position when you go to sell the property," says Khosla.
Shetty says that if a lien exists, both the borrower and a bank representative must appear at the registrar's office to remove it.
A property on which there is a lien can't be sold.
Once a loan has been closed, the lending institutions must update the credit bureaus.
"Monitor credit reports to ensure they accurately reflect the loan closure without discrepancies," says Kapoor.
Once the bank has issued the NOC and the lien has been removed, apply for a fresh encumbrance certificate (EC) from the registrar.
Thacker says the updated EC should document all property-related transactions, including loan repayment.
If the EC does not reflect the loan closure, borrowers need to approach both the lending institution and the registrar.
While the RBI's guidelines aim to streamline the loan closure process, borrowers must remain proactive.
"There are chances that a few things may be skipped, so monitor closely and ensure that each step is executed properly," says Shetty.
Guide to removing car hypothecation
- Repay the car loan and collect all relevant documents from the lender, along with a No Objection Certificate (NOC)
- Visit the Regional Transport Office (RTO)
- Fill in Form 35 for the termination of hypothecation. Each state has its own format for this form, which can be found online or at the RTO
- Submit original Form 35, signed and stamped by the borrower and the bank; original bank NOC; copy of PAN; copy of car insurance policy; original registration certificate; address proof, etc.
- Get documents verified by RTO and pay the required fees
- Collect your updated Registration Certificate (RC) at the given time and date
- Your car loan hypothecation will be removed once you collect your updated RC
Source: Bank Web sites
Feature Presentation: Aslam Hunani/Rediff.com
