RBI revises fair practices code

NBFCs in the lending business are required to adhere to certain fair practices, i.e. certain general principles on adequate disclosures on the terms and conditions of a loan and also adopt a non-coercive recovery method. These are prescribed by RBI and amended from time to time to deal with market trends. Recently with the creation of a new category of NBFC-MFIs and rapid growth in lending against gold, the RBI has amended the fair practices code. 


A few highlights of the fair practices code is set out below:


1. NBFCs shall mention the penal interest charged for late repayment in bold in the loan agreement.


2. NBFCs shall ensure that the staff are adequately trained to deal with the customers in an appropriate manner, and not rudely.


3. NBFC-MFIs should ensure that recovery of loans should not be through coercion.


4. Suitable internal control systems should be implemented by all NBFCs.


5. NBFCs lending against gold must ensure that assaying is done properly, gold jewellery is properly stored and appropriately insured. An auction procedure must be established for cases where the loans are not repaid.


NBFCs are required to upload the fair practices code on their website and display the same prominently at their office/s. Non-compliance with the terms of these regulations may invite penalties from the RBI, however it will be interesting to see how many NBFCs actually adhere to the fair practices code drawn up.