This policy emanates from Circular No. DNBS(PD)CC No.80/03.10.042/ 2005-06 dated September 28, 2006 and revised Circular no. DNBS.CC.PD.No.266/03.10.01/2011-12 dated 26 March 2012 issued by the Reserve Bank of India (“RBI”) with respect to its guidelines on Fair Practices Code (FPC) applicable for all NBFCs.
Reserve Bank of India (RBI) vide its Circular No. DNBS(PD)CC No.80/03.10.042/ 2005-06 dated September 28, 2006 and revised Circular no. DNBS.CC.PD.No.266/03.10.01/2011-12 dated 26 March 2012 has advised all Non-Banking Finance Companies (NBFCs). SiCreva (hereinafter referred to as “NBFC”) to formulate & document a Fair Practices Code duly approved by the board of directors based on the guidelines mentioned therein.
(i) Applications for loans and their processing
- All communications to the borrower shall be in the vernacular language or a language as understood by the borrower.
- Loan application forms shall 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.
- The NBFC shall devise a system of giving acknowledgement for receipt of all loan applications. Preferably, the time frame within which loan applications will be disposed of shall also be indicated in the acknowledgement.
(ii) Loan appraisal and terms/conditions
The NBFC shall convey in writing to the borrower in the vernacular language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with the terms and conditions including annualized rate of interest and method of application thereof and keep the acceptance of these terms and conditions by the borrower on its record. The NBFC shall mention the penal interest charged for late repayment in bold in the loan agreement.
The NBFC shall furnish a copy of the loan agreement, preferably in the vernacular language or in a language understood by the borrower, along with a copy each of all enclosures quoted in the loan agreement to the borrowers at the time of sanction / disbursement of loans.
(iii) Disbursement of loans including changes in terms and conditions
- The NBFC shall give notice to the borrower in the vernacular language as understood by the borrower of any change in the terms and conditions including disbursement schedule, interest rates, service charges, prepayment charges etc. The NBFC shall also ensure that changes in interest rates and charges are effected only prospectively. A suitable condition in this regard shall be incorporated in the loan agreement.
- Decision to recall / accelerate payment or performance under the agreement shall be in consonance with the loan agreement.
- The NBFC shall release all securities on repayment of all dues or on realization of the outstanding amount of loan subject to any legitimate right or lien for any other claim the NBFC 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 the NBFC is entitled to retain the securities till the relevant claim is settled/paid.
- NBFCs shall 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).
- 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.
- In the matter of recovery of loans, the NBFC should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans etc. The NBFC shall ensure that the staff are adequately trained to deal with the customers in an appropriate manner.
(v) The NBFC shall 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 the NBFC functionaries are heard and disposed of at least at the next higher level. The NBFC shall, for the benefit of their customers, prominently display the name and contact details of the Grievance Redressal Officer who can be approached by the public for resolution of complaints against the NBFC at its offices.
(vi) Fair Practices Code (preferably in vernacular language or any other language as understood by the borrower) should be put up on the website (if any) of the NBFC for the information of various stakeholders.
(vii) The Board of the NBFC shall adopt an interest rate model taking into account relevant factors such as, cost of funds, margin and risk premium, etc. and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.
The rates of interest and the approach for gradation of risks shall also be made available on the web-site of the companies or published in the relevant newspapers. The information published in the website or otherwise published should be updated whenever there is a change in the rates of interest.
The rate of interest should be annualised rates so that the borrower is aware of the exact rates that would be charged to the account.