Fair Practice Code
The Fair Practices Code (FPC) is aimed to provide the customer’s effective overview of practices, which will be followed by the Company in respect of the financial facilities and services offered by the Company to its customers.
Pursuant to Reserve Bank of India (RBI) ‘s Circular DNBS.CC.PD.No.266 /03.10.01/ 2011-12 of 26th March, 2012, issued to Non-Banking Financial Companies (NBFCs), the Board of Directors have adopted a Fair Practices Code at its meeting held on 30th May, 2012.
The Fair Practices Code, as adopted herein below, is in conformity with the Guidelines on Fair Practices Code for NBFCs as prescribed by the Reserve Bank of India and as contained in the aforesaid RBI Circular.
Fair Practices Code
The Company would adhere to the Fair Practices Code in its functioning, the key elements of which are as follows:
Application for Loans and their Processing
All communications with the borrower shall be in the vernacular language or a language as understood by the borrower. Loan application forms shall include necessary information such as key financiers which affects the interest of the borrower that will enable the borrower to make a meaningful decision. The loan application form may also indicate the documents required to be submitted with the application form. The Company shall devise a system of giving acknowledgement for receipt of all loan applications. Further, generally, the time frame within which the loan application will be disposed of would also be indicated in the acknowledgement.
Approval – Loan appraisal and terms/conditions
The Company shall convey in writing to the borrower by means of approval letter/sanction letter or otherwise, the amount of loan approved/sanctioned – along with the terms and conditions, including annualized rate of interest and method of application thereof. It would keep the acceptance of these terms and conditions by the borrower on
the Company’s files.
The Company shall furnish a copy of the loan agreement along with a copy each of enclosures, as applicable, to the borrowers at the time of disbursement of loans.
Loan Agreement shall also mention in bold about the penal interest charged for late repayment.
Disbursement of Loans including Changes in Terms and Conditions
The Company shall give notice to all its borrowers (in vernacular language) of any change in the terms and conditions – including disbursement schedule, interest rates, service charges, prepayment charges etc. The Company shall also ensure that changes in interest rates and charges are effected only prospectively. A suitable provision in this regard shall be incorporated in the loan agreement.
Decision to recall / accelerate payment or performance under the agreement shall also be in consonance with the loan agreement.
The Company shall release all securities on repayment of its full dues or on realization of the outstanding amount of loan subject to any legitimate right or lien for any other claim the Company may have against its borrowers. 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 Company is entitled to retain the securities till the relevant claim is settled / paid.
Disclosures about Interest
Company shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges.
Company 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 shall be updated whenever there is a change in the rates of interest.
The rate of interest shall be annualized rates so that the borrower is aware of the exact rates that would be charged to the account.
Repossession clause shall be incorporated in the contract/loan agreement with the borrower which shall be legally enforceable. To ensure transparency, the terms and conditions of the contract/loan agreement shall also contain provisions regarding:
Notice period before taking possession; Circumstances under which the notice period can be waived; Procedure for taking possession of the security; Provision regarding final chance to be given to the borrower for repayment of loan before the sale/auction of the property; Procedure for giving repossession to the borrower and for sale/auction of the property. A copy of such terms and conditions shall be made available to the borrowers.
The Company shall refrain from interference in the affairs of the borrower except for the purposes provided for 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 Company).
In case of receipt of request from the borrower for transfer of borrowal account, the consent or otherwise – i.e., objection of the Company, if any – shall be conveyed to the borrower within 21 days from the date of receipt of any request. Such transfer shall be as per transparent contractual terms in consonance with law. In the matter of recovery of loans, the Company shall not resort to undue harassment – such as persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. Company shall ensure that the staff is adequately trained to deal with the customers in an appropriate manner.
Grievance Redressal Mechanism
The Board of Directors of company laid down the appropriate grievance redressal mechanism within the organization to resolve disputes arising in this regard. Such a mechanism shall ensure that all disputes arising out of the decisions of company’s functionaries are heard and disposed of at least at the next higher level. The Board of Directors shall also provide for periodical review of the compliance of the Fair Practices Code and the functioning of the Grievances Redressal Mechanism at various levels of management. A consolidated report of such reviews may be submitted to the Board at regular intervals, as may be prescribed by it.
Wide Dissemination and Periodic Review
The Company shall put the above Fair Practices Code outlined hereinabove on its website, for the information of various stakeholders. The Company shall also review and refine the Code, as may be required periodically – based on its own experience and fresh
guidelines, if any, to be issued by the RBI in this regard.