What changed
RBI issued a Master Circular consolidating all existing Fair Practices Code instructions for NBFCs and RNBCs as of June 30, 2012, replacing the previous Master Circular from July 1, 2011. The circular incorporates earlier guidelines from September 2006 and March 2012, including new rules for NBFC-MFIs and gold loan lending.
What it means for you
NBFCs must ensure all loan communications are in the borrower's vernacular language, provide sanction letters with annualized interest rates and penal interest terms in bold, and furnish loan agreement copies. For gold loans, a board-approved policy and auction procedure are mandatory. NBFC-MFIs must follow non-coercive recovery methods and maintain internal control systems.
What you must do
- Update your Fair Practices Code to align with this Master Circular, ensuring vernacular language use in all borrower communications.
- Include annualized interest rates and penal interest charges in bold in loan agreements and sanction letters.
- Provide borrowers with a copy of the loan agreement, preferably in a language they understand.
- For gold loans, implement a board-approved lending policy and transparent auction process.
- For NBFC-MFIs, adopt non-coercive recovery practices and strengthen internal controls.
Who it affects
All Non-Banking Financial Companies (NBFCs), Residuary Non-Banking Companies (RNBCs), NBFC-Microfinance Institutions (NBFC-MFIs), NBFCs lending against gold jewellery
Does this Master Circular replace all previous Fair Practices Code guidelines?
Yes, it supersedes the Master Circular issued on July 1, 2011, and consolidates all instructions on the Fair Practices Code for NBFCs as of June 30, 2012.
What are the key disclosure requirements for loan agreements under this circular?
NBFCs must disclose the annualized rate of interest, method of application, and penal interest for late repayment in bold. A copy of the loan agreement must be provided to the borrower, preferably in the vernacular language.
Are there specific rules for NBFCs lending against gold jewellery?
Yes, NBFCs must have a board-approved policy for gold loans and follow a prescribed auction procedure for defaulted collateral.