What changed
RBI observed that some cooperative banks levy undisclosed charges beyond processing fees, which is an unfair practice. The circular now mandates that loan application forms for all loan categories must comprehensively disclose all fees, charges, refundability, prepayment options, and the all-in-cost. Additionally, banks must provide written reasons for loan rejections within a stipulated time, regardless of loan amount.
What it means for you
Cooperative banks must overhaul their loan application forms to include full fee transparency, ensuring borrowers can compare costs across lenders. This increases compliance burden but reduces customer complaints and regulatory risk. Banks must also formalize loan rejection communication processes, which may require system updates and staff training.
What you must do
- Update all loan application forms to list every processing fee, charge, refund policy, prepayment terms, and the all-in-cost.
- Establish a process to communicate written reasons for loan rejections to applicants within a stipulated timeframe.
- Train frontline staff and loan officers on the new disclosure requirements to ensure consistent implementation.
- Review internal pricing policies to ensure no undisclosed charges are levied on borrowers.
Who it affects
State Co-operative Banks (StCBs), Central Co-operative Banks (DCCBs), Borrowers applying for loans from cooperative banks
Does this circular apply to all loan amounts?
Yes, the disclosure requirements apply to all categories of loans irrespective of the loan amount sought by the borrower.
What must be disclosed in the loan application form?
All fees/charges payable for processing, refundability in case of non-acceptance, prepayment options, and any other matter affecting borrower interest, plus the all-in-cost.
What if a bank rejects a loan application?
The bank must convey in writing the main reasons for rejection within a stipulated time, for all loan categories without any threshold limit.