The Reserve Bank of India (RBI) today issued draft guidelines on fair practices code for non-banking finance companies (NBFCs), which it has proposed to make applicable from June 30, 2006.The draft code requires NBFCs to to convey in writing to the borrower the amount of loan sanctioned along with the terms and conditions including annualised rate of interest and method of application of interest and keep the acceptance of these terms and conditions by the borrower on its record.NBFCs would also have to devise a system of giving acknowledgement for receipt of all loan applications. Preferably, the time frame within which loan applications will be disposed of would also have to be indicated in the acknowledgement.The code provides that the borrower would have to be given a notice of any change in the terms and conditions including disbursement schedule, interest rates, service charges and prepayment charges. 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.Post disbursement supervision by NBFCs should be constructive and the genuine difficulties which the borrower may face, may be given due consideration. Before taking a decision to recall / accelerate payment or performance under the agreement or seeking additional securities, NBFCs should give notice to borrowers in consonance with the loan agreement, the draft code said.In case of receipt of request for transfer of borrowal account, either from the borrower or from a lender which proposes to take over the account, the consent or 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, the code pointed out.It further stated that in the matter of recovery of loans, the NBFCs should not resort to harassment.The Board of Directors of NBFCs would have to 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.RBI said 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.
