What changed
RBI superseded its 2006 Fair Practices Code guidelines with a revised version, incorporating instructions from 2007 (excessive interest complaints) and 2009 (vehicle repossession). The update adds specific requirements for NBFC-MFIs and gold loan lenders, mandating loan agreements in vernacular languages, bold disclosure of penal interest, and prospective application of interest rate changes.
What it means for you
NBFCs must overhaul their loan documentation and communication processes to ensure borrowers receive clear, vernacular-language terms and a copy of the full loan agreement. Lenders face stricter scrutiny on interest rate disclosures and recovery practices, with penalties for non-compliance. This levels the playing field with banks and reduces customer grievances.
What you must do
- Revise your Fair Practices Code with board approval within one month from March 26, 2012.
- Update loan application forms to include all key terms and required documents for informed borrower comparison.
- Provide loan sanction letters and agreements in the borrower's vernacular language, with annualised rate of interest and penal charges in bold in the loan agreement.
- Ensure all changes in interest rates or charges are applied prospectively and communicated in writing.
- Publish the revised FPC on your website and disseminate it publicly.
Who it affects
All NBFCs regulated by RBI, NBFC-MFIs, Gold loan NBFCs, Borrowers of NBFCs
What is the deadline for implementing the revised Fair Practices Code?
NBFCs must get the modified FPC approved by their board and put it in place within one month from the circular date, i.e., by April 25, 2012.
What happens if an NBFC does not comply?
The circular does not specify penalties; NBFCs are advised to make suitable amendments and put the FPC in place with board approval.