All Non-Banking Financial Companies
(including Residuary Non-Banking Companies)
Dear Sir,
Guidelines on Fair Practices Code for Non-Banking Financial
Companies
The Reserve Bank of India, being satisfied that
for the purpose of enabling it to regulate the credit system of the country
to its advantage, it is necessary to do, hereby, in exercise of powers conferred
under Section 45 L of the Reserve Bank of India Act, 1934 ( Act 2 of 1934) and
of all the powers enabling it in this behalf, hereby prescribes the broad guidelines
on fair practices that are to be framed and approved by the Board of Directors
of all Non- Banking Financial Companies (including RNBCs). The fair practices
code so framed and approved by the Board of Directors should be published and
disseminated on the web-site of the company, if any, for the information of
the public. The Fair Practices Code based on guidelines outlined in the Annex
should be put in place by all NBFCs with the approval of their Boards within
one month from the date of issue of this circular.
2. Please acknowledge receipt of this circular
to the Regional Office of DNBS under whose jurisdiction the registered office
of the company is situated.
Yours faithfully
( P. Krishnamurthy)
Chief General Manager – in – Charge
Guidelines on Fair Practices Code for NBFCs
(i) Applications for loans and their processing
(a) Loan application forms should include
necessary information which affects the interest of the borrower, so that a
meaningful comparison with the terms and conditions offered by other NBFCs can
be made and informed decision can be taken by the borrower. The loan application
form may indicate the documents required to be submitted with the application
form.
(b) The NBFCs should devise a system of giving
acknowledgement for receipt of all loan applications. Preferably, the time frame
within which loan applications will be disposed of should also be indicated
in the acknowledgement.
(ii) Loan appraisal and terms/conditions
The NBFCs should convey in writing to the borrower
by means of sanction letter or otherwise, the amount of loan sanctioned along
with the terms and conditions including annualised rate of interest and method
of application thereof and keep the acceptance of these terms and conditions
by the borrower on its record.
(iii) Disbursement of loans including
changes in terms and conditions
(a) The NBFCs should give notice to the borrower
of any change in the terms and conditions including disbursement schedule, interest
rates, service charges, prepayment charges etc. NBFCs should also ensure that
changes in interest rates and charges are effected only prospectively. A suitable
condition in this regard should be incorporated in the loan agreement.
(b) Decision to recall / accelerate
payment or performance under the agreement should be in consonance with the
loan agreement.
(c) NBFCs should release all securities on
repayment of all dues or on realisation of the outstanding amount of loan subject
to any legitimate right or lien for any other claim NBFCs may have against borrower.
If such right of set off is to be exercised, the borrower shall be given notice
about the same with full particulars about the remaining claims and the conditions
under which NBFCs are entitled to retain the securities till the relevant claim
is settled/paid.
(iv) General
(a) NBFCs should refrain from interference
in the affairs of the borrower except for the purposes provided in the terms
and conditions of the loan agreement (unless new information, not earlier disclosed
by the borrower, has come to the notice of the lender).
(b) In case of receipt of request from the
borrower for transfer of borrowal account, , the consent or otherwise i.e. objection
of the NBFC, if any, should be conveyed within 21 days from the date of receipt
of request. Such transfer shall be as per transparent contractual terms in consonance
with law.
(c) In the matter of recovery of loans, the
NBFCs should not resort to undue harassment viz. persistently bothering the
borrowers at odd hours, use of muscle power for recovery of loans , etc..
(v) The Board of Directors of NBFCs should
also lay down the appropriate grievance redressal mechanism within the organization
to resolve disputes arising in this regard. Such a mechanism should ensure that
all disputes arising out of the decisions of lending institutions' functionaries
are heard and disposed of at least at the next higher level. The Board of Directors
should also provide for periodical review of the compliance of the Fair Practices
Code and the functioning of the grievances redressal mechanism at various levels
of management. A consolidated report of such reviews may be submitted to the
Board at regular intervals, as may be prescribed by it.
(vi) Fair Practices Code based on the guidelines
outlined hereinabove should be put in place by all NBFCs with the approval of
their Boards within one month from the date of issue of this circular. NBFCs
will have the freedom of drafting the Fair Practices Code, enhancing the scope
of the guidelines but in no way sacrificing the spirit underlying the above
guidelines. The same should be put up on their web-site, if any, for the information
of various stakeholders.