On September 13, 2023, the Reserve Bank of India (RBI) issued guidelines on Responsible Lending Conduct which directs Regulated Entities (REs) to release all original movable or immovable property documents, and remove charges registered with any registry within 30 days of full repayment or settlement of personal loans by borrowers.
- These directions by RBI are issued under sections 21, 35A and 56 of the Banking Regulation (BR) Act, 1949, sections 45JA and 45L of the RBI Act, 1934, and section 30A of the National Housing Bank (NHB) Act, 1987.
- Official notification of ‘Responsible Lending Conduct – Release of Movable / Immovable Property Documents on Repayment/ Settlement of Personal Loans‘
Note: The REs include All Commercial Banks (including Small Finance Banks(SFBs) and Regional Rural Banks(RRBs), excluding Payments Banks); All Local Area Banks; All Primary (Urban) Co-operative Banks; All State Co-operative Banks and District Central Co-operative Banks; All Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs); and All Asset Reconstruction Companies (ARCs).
Applicability:
These Directions are applicable to all cases where release of original movable / immovable property documents falls due on or after December 1, 2023.
Reason behind These Directions:
Despite Fair Practices Code guidelines since 2003, REs exhibit inconsistent practices in releasing property documents upon full loan repayment, causing customer disputes and grievances. In order to overcome this situation and to protect borrowers’ rights and ensure a smoother, more accountable lending process these directions has been issued.
Key Points:
i.Borrowers can choose to collect documents from the loan-serving branch or another RE office.
ii.REs must have a procedure for returning documents to legal heirs in case of borrower demise.
- This should be available on the REs’ website for customer reference.
iii.If REs delay property document release or fail to file charge satisfaction forms after 30 days post-loan settlement, they must explain the reasons to the borrower.
- If the delay is REs’ fault, they must compensate the borrower at Rs 5,000 for each day of delay.
iv.If property documents are lost/damaged, REs must help obtain duplicates and cover associated costs, in addition to the compensation of Rs 5000/day for delay.
- However, this process allows for an additional 30 days to the REs, with penalties calculated after 60 days.
v.This compensation doesn’t affect the borrower’s rights under other applicable laws.
RBI revises Banks’ Investment Portfolio Norms, w.e.f April 1, 2024
RBI also revised its guidelines on categorizing the investments by banks, to align them with global standards by issuing RBI (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2023 which will be effective from April 1, 2024.
- The change in the norms follows the revisions proposed in the Discussion Paper (DP) on January 14, 2022 regarding the current norms for the classification, valuation, and operation of investment portfolios of commercial banks.
- With the implementation of revised Directions, RBI (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2021 dated August 25, 2021 will be repealed.
RBI issued these directions in the exercise of its powers conferred under section 35A of the BR Act, 1949, and all the powers enabling it on this behalf.
Applicability:
All commercial banks (excluding Regional Rural Banks-RRBs)
Reasons behind this revision:
i.To ensure transparency and stability in the banking sector
ii.To introduce a framework for banks to categorize their investments and specify how they should be valued and managed.
Key Points:
i.RBI introduced a new category of investment, Fair Value Through Profit and Loss (FVTPL) account. The existing HFT category will now be part of FVTPL category. So, as per the revised norms, banks will have to classify their entire investment portfolio under three categories viz. Held-to-Maturity (HTM), Available for Sale (AFS) and FVTPL.
1.HTM: Under this existing category, banks hold securities until maturity.
- These securities should provide regular principal and interest payments.
2.AFS: These securities will collect contractual cash flows with the option to sell.
- These will be fair-valued at least quarterly.
3.FVTPL: This is a new category introduced by RBI and includes securities that do not qualify for HTM or AFS.
- Securities in this category are valued at fair market value, and any gains or losses are directly reflected in the bank’s profit and loss account.
- Banks need more regular accounting for investments in FVTPL books.
- Note: HFT category was for debt securities purchased by banks with the intent of selling them within a short period.
ii.RBI has removed the 90-day ceiling on holding period of securities under the Held for Trading (HFT) category, and ceiling on HTM in lenders’ investment portfolios.
- At present, Banks can exceed 25% in HTM if government securities meet statutory liquidity ratio (SLR) requirement, capped at 18%.
iii.Instruments with loss-absorbing features (e.g., tier 1 or tier 2 capital) can’t be in AFS or HTM.
iv.Under the new RBI guidelines, all investments must be measured at fair value upon initial recognition.
v.Government securities acquired from RBI auctions, switch operations, and open market operations will be recognized at their allotted prices.
vi.Investments in subsidiaries, associates, and joint ventures will be held separately from other investment categories, and will be initially recognised at their acquisition cost. It will be adjusted if investee changes status.
Benefits of this Revision:
i.With these directions there will be improved financial reporting, enhanced disclosures, support for the corporate bond market, hedging with derivatives, and stronger risk management in banks.
ii.They align with global accounting standards while maintaining prudential safeguards like Investment Fluctuation Reserves (IFR), due diligence limits, and reliability in valuation.
Recent Related News:
i.RBI has issued a ‘Draft Circular – Arrangements with Card Networks for issue of
Debit, Credit and Prepaid Cards’ empowering the debit, credit, and prepaid card users in India with Card network portability w.e.f. October 1st, 2023.
ii.RBI included ‘NongHyup Bank’ in the Second Schedule to the Reserve Bank of India Act, 1934. NongHyup Bank (NH Bank), established in 2012, is a commercial bank headquartered in Seoul, South Korea.
About Reserve Bank of India (RBI):
Governor – Shaktikanta Das
Deputy Governors – Swaminathan Janakiraman, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar
Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
