Guidelines on Fair Practices Code for Non-Banking Financial Companies

Dear All,

Guidelines on Fair Practices Code for Non-Banking Financial Companies

As many of you aware of that the Reserve Bank of India vide its circular DNBS (PD) CC No. 80 / 03.10.042 / 2005-06 dated Sept 28, 2006 has issued a Guidelines on Fair Practices Code for Non-Banking Financial Companies 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

As per this circular, the Guidelines on Fair Practices Code for Non-Banking Financial Companies should contain the following information's.

1. application for loan and their processing

2. Loan appraisal and terms & conditions

3. Disbursement of Loan and changes in the terms and conditions

In this connection, the RBI vide its Circular DNBS.PD/ CC. No. / 03.10.042 /2007-08 dated 10^th October 2007 amended the heading "Loan appraisal and terms / Conditions".

Existing Clause "Loan appraisal and terms / Conditions" .

"That 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"

After this guidelines tt is understood that in a few cases, borrowers at the time of sanction of loans are not fully aware of the terms and conditions of the loans including rate of interest, either because the NBFC does not provide details of the same or the borrower has no time to look into detailed agreement.

In this connection, we advise that not furnishing a copy of the loan agreement or enclosures quoted in the loan agreement is an unfair practice and this could lead to disputes between the NBFC and the borrower with regard to the terms and conditions on which the loan is granted.

Amended provision

NBFCs are, therefore, advised to invariably furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans.

Also find attached original circular issued by RBI in this connection for your better understanding.

Thanks & Regards

--
Alagar
09884731993