Small borrowers don't need to give ‘No Due Certificate’ to banks

Reserve Bank of India on 28th January 2014 has instructed banks to not ask for ‘No Due Certificate’ from the individual borrowers (including SHGs & JLGs) in rural and semi-urban areas for all types of loans including loans under Government Sponsored Schemes, irrespective of the amount involved.

This decision has been taken to ensure hassle free credit to all borrowers, especially in rural and semi-urban areas and keeping in view the technological developments and the different ways available with banks to avoid multiple financing.

RBI has clarified that while Service Area Approach continues to be applicable for Government Sponsored Schemes, the borrower is free to approach any bank branch in his service area for obtaining credit under Government Sponsored Schemes.

Banks are advised to use an alternative framework of due diligence as part of credit appraisal exercise other than the ‘No Due Certificate’ which could, among others, consist of one or more of the following:

Credit history check through credit information companies
Self declaration or an affidavit from the borrower
CERSAI registration
Peer monitoring
Information sharing among lenders
Information search (writing to other lenders with an auto deadline)

Earlier, banks were advised to dispense with the requirement of ‘No Due Certificate’ for small loans up to Rs.50,000 to small and marginal farmers, share-croppers and the like and, instead, obtain self-declaration from the borrower.