To ensure hassle free credit to all borrowers, the Reserve Bank of India has asked banks to dispense with obtaining ‘no due certificate’ from the individual borrowers in rural and semi-urban areas for all types of loans.
Instead, the central bank said banks should use an alternative framework of due diligence as part of their credit appraisal exercise.
The alternative framework could, among others, consist of: credit history check through credit information companies; self declaration or an affidavit from the borrower; CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) registration; and peer monitoring.
The ‘no due certificate’ can be dispensed with in view of technological developments and the different ways available with banks to avoid multiple FINANCING, the RBI said in a notification,
The central bank issued this directive as it has received complaints from borrowers that banks are refusing to grant loans without ‘no due certificate’, especially in rural and semi-urban areas.
Specifically, banks have been asked to dispense with obtaining ‘no due certificate’ from the individual borrowers (including self help groups & joint liability groups) in rural and semi-urban areas for all types of loans.
The loans will include loans under Government sponsored schemes, irrespective of the amount involved unless the scheme itself provides for obtaining ‘no dues certificate’.
In 2007, banks were advised to dispense with the requirement of ‘no due certificate’ for small loans up to ₹50,000 to small and marginal farmers, SHARE-croppers and the like and, instead, obtain self-declaration from the borrower.