Rbi circular/rules on interest on advances/documentation

Dear Sir,

RBI keeps all its Master Circulars in their Web Site.  You can click on the following link to access the Master Circular relating to interest Rates on Loans and Advances:

https://rbi.org.in/Scripts/NotificationUser.aspx?Id=9043&Mode=0

You can access all the Master Circulars of RBI by clicking on the following link:

mastercirculars.rbi.org.in/

You are inquiring about "creating / making documents before advancing loans", please elucidate with an example to understand what exactly you wish to be clarified.

Thank You Dear Shri Sivarmaprasadji

By "creating / making documents before advancing loans", what I meant to ask is the procedure followed by the Bank when they execute Documents, pursuant to the sanction of loan to a borrower. Specifically

1.Complete procedure in General

2.Are the documents required to be executed simultaneously from  all the borrowers / guarantors etc at the same time?

3. Is the Bank required to keep the Documents  so executed in Safe Custody etc

Dear Sir,

1. Every Bank shall have a credit policy in place. As part of such credit policy various authorities starting from the lowest Officer/Manager to the Board shall be delegated with powers to sanction the loans. Sanctioning a loan is prerogative of the Bank and as part of such prerogative,  a credit decision shall be  taken by various authorities in the Bank.  Each bank shall have delegation of powers for taking such credit decision.  In terms of such credit policy only and within the delegated powers, decisions to sanction or not to sanction or how  much to sanction shall be taken.  Nobody can claim as a matter right that the authority concerned should necessarily take a decision to suit their requirement.
   
2. Once a credit decision is taken to sanction a loan, Bank itself shall provide the Loan documents like Promissory Note,  Personal guarantee papers, Hypothecation Agreements, Mortgage Deeds, etc. which are all standardized in almost all the Banks and for similar type of  loans there shall be   similar loan documentation.  However, depending upon circumstances the documentation is likely to change and additional papers have to be taken.  No adhoc decisions can be taken by any Official in the Bank as to documentation to be obtained as standard procedures have already evolved and all banks have robust legal documents in place and such documents only shall be utilised depending upon the nature of the loan.  In addition to the procedures in force, independent Inspectors visit the Branches periodically and verify the documents taken.
   
3. Whether the documents are executed simultaneously or not depends upon the loans being given. Suppose, a loan is given for which "X" agreed to stand as Guarantor. The loan is sanctioned.  But when the borrower urgently required the loan amount,Guarantor is not immediately available. Then depending upon circumstances,  a decision, within the delegated powers, can be taken to disburse the loan after taking the documentation relating to the Borrower and the documentation relating to the Guarantor shall be taken at a later date duly obtaining a link letter, linking his Guarantee to the loan already disbursed.  This kind of things depend upon the stature and dependability of such Guarantor and Borrower.  Likewise, in Corporate Loans, all Directors have to executive their personal guarantees.  However, all of them may not be available at a time at the same place.  The documentation shall be taken at different places duly ensuring the stamp act relating to that area and the place of branch are complied with. Having explained all this, I wish to add a rider that unless a specific case is cited with all facts, nobody can give an opinion about executability of a document taken at the time of loan disbursement or subsequent to the disbursement.
   
4. Banks are required to keep all the documents taken by them for their securing the loans including the documents like Deposit Receipts, Share Certificates, Title Deeds etc. taken as security at the time of mortgage/pledge,  safely with the bank and return such documents after the loan is cleared.
   

Banks can not create or make documents on it's own. There is a prescribed procedure and laid down norms on documents to be obtained for each case of advance.  And those blank forms are filled before the client, and signatures have to be made in the presence of Bank officials.

Certain banks have a system of pooling all documents and then they will first scan and send it to the Authorised web, wherein a competitive team scrutinises all documents, and then authorise the manager either to correct or obtain additional signatures/documents and finally permit the Manager to disburse the advance and issue a certificate on correctness of documents, relieving field staff on further responsibility on document lapses.

Now a days certain Banks are not even having powers to sanction deposit loans, and obtain prior permission by scanning the documents and sending hard copies of documents on the same day to pooling center (centralised places at some centers) and the team consists of a qualified law officer.

So there can never be any laxity as documents are checked in several stages and they strictly implement RBI directives without any pressures from any body.  At the most Manager may require them to expedite such scrutinisation and nothing else.  He can not disburse loan without prior authorisation.

Against all the precautions, there can never be flaws in documentation and violation of laid down directives of RBI..  Even after all this there may be some stray cases of minor violations, which may be pointed either through Inspectiors, internal auditors, concurrent auditors, statutory auditors and RBI team of inspectors.  Those will be attended on TOP PRIORITY basis, and Zero documentation error has to be ensured for rating the branch/concerned officials.

So unless the Bank and the system followed is known, it is difficult to judge the violations if any..  I have yet to hear a case from the last one decade of a suit dismissal in a court or DRT on violation of directives or on not obtaining proper documents.

Some borrowers for delay tactics invent some tricks but at the end the only point for consideration is whether amount was borrowed and securities are taken properly.  Very few cases (I do not know any specific case) DRT has commented on inadequate documentation by individual bank.

almost for several years same set of documents (time tested are taken) and number of forms are also drastically reduced and above all the Bank is enough protected on 'General Lien" on all securities in their possession.

Dear Sh GLN Prasad Ji

You rightly said

So there can never be any laxity as documents are checked in several stages and they strictly implement RBI directives.

Against all the precautions, there can never be flaws in documentation and violation of laid down directives of RBI..

It is these RBI Directives that I need. Pl help me to get them or let me know precisely how and where can I get them

Well advised by experts, for further issues you may have to search in the RBI web site itself under different headings for more circulars which you are looking for.

I am sorry, as it is against ethics and principles to evade money lent by the bank, by showing some documentation errors and to continue litigation with a Public Sector Bank, whose aim is only to help clients/borrowers and not profit alone.  Such evaders are not harming individual bank but harming entire society and to Government and to system.