Fair Practices Code for Lenders The relationship between the banks and borrowers has gained close attention of the general public as well as the Government recently, particularly due to ever growing NPAs. In the context of prevention of loan impairment and management of impaired loans, two recent developments are noteworthy : – o Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 o Fair Practice Code for Lenders (Banks & FIs) The Securitisation Act and the Fair Practices Code for Lenders are expected to help strengthen Bank-Borrower relationship. Banks & FIs are required to frame "Fair Practices Code". They should attempt to codify the responsibility of banks & institutions towards the borrowers, in a transparent manner. Broad parameters of the Code 1. Loans applications & processing : Loan application forms in case of priority sector loans upto Rs. 2 lacs should be comprehensive including information on fees and other charges payable for processing, refund of such fees in case of non-acceptance, prepayment options, etc. 2. Acknowledge receipt of loan applications. 3. Time frame for disposal of loan applications for loans upto Rs. 2 lacs to be given. 4. Loan applications to be verified / processed within a reasonable period. 5. In case application for loans upto Rs. 2 lacs is rejected, banks should convey in writing the specific reasons for such rejections. 6. There should be a proper system of assessing the credit requirement of the borrowers. 7. Credit limit, along with terms & conditions, to be conveyed and acceptance obtained. 8. Copy of loan agreement to be furnished to the borrower. 9. Loan agreement should clearly specify the discretion of lenders in regard to – o Disallowing overdrawing beyond the sanctioned limit. o Disallowing drawings in case account is non performing or borrower does not honour any of the terms of sanction. o Dishonouring cheques issued for purpose other than agreed. o No liability of lenders to meet enhanced credit requirements of borrower. 10. Ensure timely disbursal of loans sanctioned. 11. Status of the loan account should be periodically informed to the borrower. 12. Lenders to give notice of any change in terms & conditions. 13. Changes in interest rates and other changes to be effected prospectively. 14. Post disbursement supervision to be constructive to take care of genuine difficulty. 15. Banks to give reasonable notice before recalling the loan / asking for additional securities. 16. Lender to release all securities on repayment of loan. 17. Lender should restrain from interfering into the affairs of the borrower. 18. Recovery of loan : No undue harassment or use of muscle power. 19. Board of Directors of Banks to lay down clear policy on the above including appropriate grievance redressal mechanism to resolve disputes. 20. Fair practices Code to be brought into effect before August 1, 2003. 21. Code to be put on the website of the bank. 22. The new framework expected to lay down healthy relationship between the bank and the borrower.
doc_488855536.doc
doc_488855536.doc