What changed
RBI issued a Master Circular consolidating all existing instructions on Fair Practices Code for NBFCs and RNBCs as of June 30, 2011. This circular updates and replaces earlier notifications listed in the appendix, bringing all current guidelines into one document.
What it means for you
NBFCs must ensure loan application forms include key terms for borrower comparison and provide acknowledgments with processing timelines. They must furnish loan agreements with all enclosures at sanction/disbursement, and any interest rate or charge changes must be prospective only. Securities must be released promptly upon full repayment, subject to any legitimate lien.
What you must do
- Review and update your Fair Practices Code with Board approval, ensuring it covers all guidelines in this Master Circular.
- Publish the approved code on your website and make it accessible to the public.
- Revise loan application forms to include all necessary information for borrower comparison and list required documents.
- Implement a system to acknowledge loan applications and indicate disposal timelines.
- Ensure loan sanction letters include annualized interest rates and method of application, and provide copies of loan agreements with all enclosures at sanction/disbursement.
Who it affects
All Non-Banking Financial Companies (NBFCs), Residuary Non-Banking Companies (RNBCs), Board of Directors of NBFCs/RNBCs, Borrowers of NBFCs/RNBCs
What is the key requirement for loan application forms under this Master Circular?
Loan application forms must include necessary information affecting borrower interest, enabling comparison with other NBFCs. They should also indicate documents required for submission.
How should NBFCs handle changes in interest rates or charges?
NBFCs must give notice of any changes in terms, including interest rates and charges, and ensure such changes are applied only prospectively. A condition to this effect should be in the loan agreement.
What must NBFCs do regarding loan agreements and securities?
NBFCs must furnish a copy of the loan agreement with all enclosures at sanction/disbursement. Upon full repayment, they must release all securities, subject to any legitimate right or lien for other claims.