Guidelines on Fair Practices Code for Lenders (March 6, 2007)
To achieve greater transparency Reserve Bank of India (RBI) has asked the banks to provide information like fees/charges, reasons for rejecting any applications for any loans to all the borrowers including credit card applicants. Earlier such instructions were applicable for the loan amounting to Rs 2 lakh only.
As per existing instructions, banks / FIs are required that loan application forms in respect of priority sector advances up to Rs.2.00 lakhs should be comprehensive and should include information about the fees/charges, if any, payable for processing, the amount of such fees refundable in the case of non-acceptance of application, pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower.
Now RBI has decided that the above instructions will be applicable to all loan applications in respect of all categories of loans irrespective of the amount of loan sought by the borrower.
2. Further, in terms of a RBI circular in 2003, banks / FIs are required that in the case of small borrowers seeking loans up to Rs. 2 lakhs the lenders should convey in writing, within stipulated time, the main reason/reasons which, in the opinion of the bank / FI have led to rejection of the loan applications.
Now in case of all categories of loans irrespective of any threshold limits, including credit card applications, banks / FIs are required to convey in writing the main reason / reasons which, in the opinion of the bank / FI have led to rejection of the loan applications.
Banks / FIs have been advised to make necessary modifications in their Fair Practices Code based on the above instructions, with the approval of the Board, by April 30, 2007. The modified Fair Practices Code should be placed on the bank's / FI's website and also given wide publicity.
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