Records Destruction Policy

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rrganesh (Querist)
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01 October 2009 Pls clarify - How long the documents to be stored.(majorily loan documents of banking & Nonbanking sectors). What are the laws insisting for retention or destruction policy. Can any one destroy the docs before the period prescribed by laws.

rrganesh

rrganesh (Querist)
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08 October 2009 Kindly reply my query
How long the documents to be stored.(majorily loan documents of banking & Nonbanking sectors). What are the laws insisting for retention or destruction policy. Can any one destroy the docs before the period prescribed by laws.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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22 July 2025 Retention of Loan Documents (Banking & Non-Banking Sectors)
The retention period for loan documents and other related records depends on the regulatory requirements set by various laws and regulatory authorities. Below is a general overview of the key considerations and laws governing the retention or destruction of documents, particularly loan documents, in the banking and non-banking sectors:

1. Regulatory Guidelines for Banking Sector
For banks and financial institutions, the retention of records is governed primarily by:

a. Reserve Bank of India (RBI) Guidelines
Loan Documents Retention: As per the RBI guidelines, banks are required to retain loan documents for a minimum of 5 years from the date of settlement of the loan.

For loans where legal proceedings have been initiated, the retention period could be longer.

Loan documents that are under litigation or recovery proceedings must be retained until the resolution of such matters.

b. Income Tax Act, 1961
According to the Income Tax Act, documents related to income, deductions, and liabilities need to be retained for a minimum period of 6 years from the end of the relevant assessment year.

This includes loan agreements, documents of repayment, and interest.

c. The Sarfaesi Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002)
For loan accounts that are subject to recovery under SARFAESI Act, documents must be retained for a minimum of 12 years from the date of closure of the loan or foreclosure of the loan account.

d. The Companies Act, 2013 (For Corporate Loans)
For corporate loans where the company is involved, documents relating to loan agreements and financial statements must be maintained for a minimum period of 8 years after the relevant financial year.

2. Regulatory Guidelines for Non-Banking Financial Companies (NBFCs)
For NBFCs, the retention and destruction of loan-related documents are generally governed by similar norms, but with certain nuances:

a. RBI (Regulation for NBFCs)
The RBI has set similar requirements for loan documentation under its NBFC regulations, which generally stipulate retention periods in line with the Banking Regulations Act.

However, NBFCs may also follow company-specific policies which could vary slightly depending on the nature of the loan, whether it’s a secured or unsecured loan, and the type of clients served.

b. Income Tax Act (For NBFCs)
For NBFCs, the Income Tax Act also requires retention of financial documents, including loan records, for a minimum of 6 years from the end of the relevant assessment year.

3. Destruction of Documents
Regarding the destruction of documents:

Destruction before the prescribed period is not recommended unless there are clear instructions from regulatory bodies allowing for earlier disposal. In fact, premature destruction could lead to legal risks and penalties, especially in case of future audits or litigation.

Documents that contain sensitive financial information (like loan documents) should only be destroyed after the prescribed retention period has expired. The destruction should be done securely, usually via shredding or incineration, to ensure that confidential information is not exposed.

4. General Document Retention Periods
Loan Agreements/Contracts: Typically, these should be retained for at least 5 to 12 years, depending on the specific laws and circumstances (as discussed above).

Repayment Schedules & Financial Statements: These should be retained for at least 6 years under the Income Tax Act.

Security Documents (for secured loans): These may need to be retained for 12 years or more, especially in cases of recovery under the SARFAESI Act.

Key Considerations
Litigation and Recovery: If a loan document is under litigation or in a recovery process, the documents must be retained until the case is resolved, even if the statutory retention period has passed.

Electronic Records: For electronic records, the same retention guidelines apply. However, care should be taken to ensure that digital backups are securely stored and accessible when needed.

Can Documents Be Destroyed Before the Prescribed Period?
No, destroying documents before the prescribed period is not advisable.

Premature destruction could lead to penalties from regulators, as well as problems in case of audits, tax assessments, or legal disputes. Moreover, in case of litigation, destroyed documents might be needed as evidence.

In case the retention period needs to be extended, the institution must document the reason for retaining the records beyond the statutory period, such as ongoing disputes, audits, etc.

Conclusion
The general retention period for loan documents in the banking and non-banking sectors typically spans 5 to 12 years, depending on various factors like tax law, company-specific policies, and the nature of the loan (secured vs. unsecured). Destruction of such documents before the prescribed period is not advised due to legal and regulatory risks. Always consult with legal or compliance experts before deciding on document destruction policies.

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