Mumbai, May 5: The Reserve Bank of India (RBI) today released a manual that sets out the things lenders should ideally do to help small borrowers get a fair deal.
Much of the document, called the fair practices code for lenders, is devoted to how borrowers are assessed and how fast their requests for funds are processed. It says, for instance, that margin and security norms should not be a substitute for due diligence.
Application forms for priority sector loans up to Rs 2 lakh should include information about the fees/charges for processing, pre-payment options and all other details that would facilitate meaningful comparisons with the terms offered by other banks. Acknowledgements should be provided once a loan application is received, and the time needed for the bank to arrive at a decision should be indicated to borrowers. Lenders should explain, in writing, the main reason why requests for loans have been rejected.
The guidelines have been on the basis of the recommendations of the Working Group on Lenders’ Liability Laws constituted by the Government of India.
According to the RBI, the lender should convey the credit limit, along with the terms and conditions, and retain the document showing the borrower’s acceptance. Other caveats on credit facilities decided in consultation with borrowers should be mentioned in writing and certified by the authorised official, the RBI said.
The code also stipulates that a copy of the loan agreement, along with that of all enclosures incorporated in the document, should be furnished to borrowers.
In case of consortium loans, lenders should evolve procedures to appraise proposals in a time-bound manner, and intimate borrowers about their decision — accepting or rejecting — an application in a reasonable time.
Lenders have been asked to see to it that loans sanctioned in conformity with the terms and conditions are disbursed on time. Notice of changes should be prompt.