Providing loans is the major business activity of banks and NBFCs. Lending institutions adopt different means and strategies to attract borrowers.
In order to protect the rights of the borrower, the RBI has developed ‘Guidelines on Fair Practice Code for the Lenders’, which these lending institutions need to follow. These guidelines are aimed at protecting the rights of the borrowers.
These guidelines were developed by RBI on the basis of the recommendations of Working Groups on Lenders Liability Laws, constituted by government of India. These guidelines are categorised under five heads covering different aspects of loan lending process.
Loan application and processing
Loan application should be comprehensive and should include details like fees and charges, fee refunds, prepayment and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other lenders can be made and informed decision can be taken by the borrower.
Acknowledgement for receipt of all loan applications along with time frame for disposal should be provided by the lenders.
Loan verification to be done in reasonable time. Additional documents to be sought immediately. In case of rejection of loan, applicants to be intimated the reasons of rejection in writing in stipulated time.
Loan appraisal / terms and conditions
Lenders should ensure that there is proper assessment of credit application by borrowers. They should not use margin and security stipulation as a substitute for due diligence of credit worthiness of the borrower.
Lenders to convey the credit limit along with terms and conditions to the borrower and take the acceptance from the borrower after their full understanding of terms and conditions.
As far as possible, the loan agreement should clearly stipulate credit facilities that are solely at the discretion of lenders.
Any terms and conditions between borrower and lender needs to be in writing along with signature of authorised persons. This is to be provided to the borrower along with agreement copy.
Lenders to ensure timely disbursement of loans as per the terms and conditions agreed upon.
In case of change of terms and conditions such as interest rate, bank charges etc, notice to be provided to the customer. Any of these changes need to be done prospectively only.
Post disbursement supervision
Constructive approach needs to be taken by lenders in handling any difficulties that the borrower may be facing. Due notice needs to be provided to the borrower in case of recall / acceleration of the loan payment by the lender.
All the securities need to be released once the loan is paid or realised. Due notice needs to provided to the borrower in case of initiation of set off.
Lenders to refrain from affairs of the borrowers beyond what is mentioned in the terms and conditions unless there is new information not disclosed by the borrower earlier.
No discrimination based on caste, religion, gender, etc. Loans provided under credit link schemes to the weaker section of the society are an exception.
Lenders not to resort to any undue harassment of the borrowers in recovery of the loans like persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. Any transfer request from the borrower or any bank / financial institution needs to be responded within 21 days.
The Board of Directors of the Lenders should lay down the appropriate grievance redressal mechanism within the organization to resolve disputes arising in this regard.
(The writer is a Vile Parle-based social activist)