RBI asks banks, FIs to set up fair practices code by April 2003

MUMBAI: Banks and financial institutions should put in place fair practices code lenders'' liabilities by April 1, 2003 according to the recommendations of the Reserve Bank of India-constituted working group, the RBI said on Thursday.
The apex bank has consulted banks and FIs to prepare broad guidelines for framing the Fair Practices Code with the approval of their boards, the RBI said in a notification here.
The lenders should ensure proper assessment of the borrowers'' credit requirement and limit, and in case of rejection of any loan application, lenders should specify in writing the reasons for doing so, it said.
Lenders should give reasonable notice to borrowers before taking decision to recall or accelerate payment or performance under the agreement or seeking additional securities.
Banks and FIs should keep the borrowers informed the state of their accounts from time to time and give notice for any change in the terms and conditions including interest rates, service charges among others, RBI said.
"Stipulation of margin and security should be based on due diligence and credit worthiness of borrowers,� the RBI said, adding the banks and FIs should ensure timely disbursement of loans.
"The loan agreement should clearly specify the liability to lenders to borrowers in regard to allowing drawings beyond the sanctioned limits, honouring the cheques issued for the purpose other than agreed.�
RBI said banks and FI should release all securities on receiving payment of loan or realisation of loan.