RBI finalises 'fair practices code for lenders' guidelines

MUMBAI: Reserve Bank of India has finalised guidelines on "fair practices code for lenders", stating that lenders should not use margin and security stipulation as a substitute for due diligence on credit worthiness of borrowers.
The lenders should also ensure that changes in interest rates and charges are effected only prospectively, RBI said in notification to all scheduled commercial banks and financial institutions on Monday.
The code should be put in place in respect of all lending prospectively, but not later than August one 2003. Banks and FIs would have the freedom of drafting the code.
Banking analysts said "this code assumes signifance in the wake of the recent enactment of the Securitisation Act as it counter balances a banker''s right vis-a-vis a borrower with its (bank''s) liabilities towards him (borrower)".
RBI said loan application forms in respect of priority sector advances up to Rs two lakh should be comprehensive and include information about fees/charges, if any, payable for processing and the amount of such fees refundable in the case of non acceptance of application.
Time frame within which loan applications up to Rs two lakh would be disposed off should also be indicated in acknowledgement of such applications, it said.
On the basis of recommendations of the working group on Lenders'' Liability Laws constituted by the Union government, RBI examined the feasibility of introducing this code for lenders with select banks and FIs.