RBI orders end to ‘no dues certificate’ for small borrowers

The Reserve Bank of India on Wednesday directed banks to do away with the practice of obtaining a 'no dues certificate' from individual borrowers to ensure easier credit to small borrowers.

Apart from individual borrowers, the new norms will also apply to self-help groups (SHGs) and joint liability groups (JLGs) in rural and semi-urban areas for all types of loans. It will also cover loans under government sponsored schemes, irrespective of the amount involved.

The RBI, under its reformist governor Raghuram Rajan, said it had got complaints from borrowers that banks were refusing to grant loans without the 'no dues certificate', especially in rural and semi-urban areas.

''Keeping in view the technological developments and the different ways available to banks to avoid multiple financing, banks are advised to dispense with obtaining 'No Due Certificate' from individual borrowers,'' RBI said in a notification.

This announcement follows RBI's earlier directive on relaxing service area norms and simple procedures for farm loans of up to Rs50,000. For sanctioning such loans, bank can use alternative ways of due diligence other than the certificate.

These include loan history from credit information companies, self-declaration or affidavit from the borrower, peer monitoring, registration from the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), and information-sharing among lenders.