Reserve Bank of India vide Master Direction No DNBR.PD.008/03.10.119/2016-17 dated September 01, 2016 (updated up to Sept 2022), advised the Boards of NBFCs to formulate a set of “Fair Practices Code” emphasizing general principles on adequate disclosure and non-coercive recovery methods with annual review.

A review of the “Fair Practices Code” was approved by the Board in its meeting held on 16.12.2024.As there is a necessity to incorporate regulatory requirements, and is to be reviewed annually, a revised “Fair Practices Code” is prepared.

A list of general principles on adequate disclosure and non-coercive recovery methods for loans is mentioned below.

1. All communications to the borrower shall be in the vernacular language or a language as understood by the borrower.
2. Loan application forms shall include necessary information which affects the interest of the borrower, so that a meaningful comparison with the terms and , conditions offered by other NBFCs can be made and an informed decision can be taken by the borrower.
3. The loan application form shall indicate the documents required to be submitted with the application form
4. The Branch shall adopt a system of giving acknowledgment for receipt of a loan application. Preferably, the time frame within which loan applications will be disposed of shall also be indicated in the acknowledgment.
5. Loan appraisal and terms/conditions applicable shall convey in writing to the borrower in the vernacular language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with the terms and conditions including annualized rate of interest and method of application thereof and keep the acceptance of these terms and conditions by the borrower on its record.
6. The sanction letter shall mention the penal charges for late repayment.
7. Borrowers may not be fully aware of the terms and conditions of the loans including the rate of interest at the time of sanction of loans, either because the branch does not provide details of the same or the borrower has no time to look into detailed documents. This is an unfair practice and this could lead to disputes between the company and the borrower with regard to the terms and conditions which are to be totally avoided.

1. The Branch/HO shall give notice to the borrower in the vernacular language or a language as understood by the borrower of any change in the terms and conditions including, interest rates, service charges, prepayment charges etc.
2. The changes in interest rates and charges are affected only prospectively.
3. A decision to recall/ accelerate payment or performance shall be in consonance with the loan document.
4. The release of all securities on repayment of all dues or on realization of the outstanding amount of loan subject to any legitimate right or lien for any other claim they may have against the borrower. If such right of set off is to be exercised, the borrower shall be given notice about the same with full particulars about the remaining claims and the conditions under which the branch is entitled to retain the securities till the relevant claim is settled/ paid.

1. The company/branch shall refrain from interference in the affairs of the borrower except for the purposes provided in the terms and conditions of the loan (unless information, not earlier disclosed by the borrower, has been noticed).
2. In the matter of recovery of loans, the company/branch shall not resort to undue harassment viz., persistently bothering the borrowers at odd hours, use muscle power for recovery of loans etc.
3. As complaints from customers also include rude behavior from the staff, the company should ensure that the staffs are adequately trained to deal with the customers in an appropriate manner.
4. As a measure of customer protection and also in order to bring in uniformity with regard to prepayment of various loans by borrowers of banks and NBFCs, the company shall not charge foreclosure charges/ pre-payment.
5. The company to adopt an appropriate grievance redressal mechanism within the organization. Such a mechanism shall ensure that all disputes arising out of the decisions of lending functionaries are heard and disposed of at least at the next higher level.
6. Review of the compliance of the Fair Practices Code and the functioning of the grievances redressal mechanism at various levels will be reviewed.
7. Grievance Redressal Officers at the operational level, shall display the following information prominently, for the benefit of their customers, at their branches/ places where business is conducted:
• The name and contact details (Telephone / Mobile nos. as also email address) of the Grievance Redressal Officer who can be approached by the public for resolution of complaints against the Branch/Company.
• If the complaint / dispute is not redressed within a period of one month, the customer may appeal to the CEO of the company (with complete contact details), under whose jurisdiction the applicable branch falls.

1. The Board shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rates of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.
2. The rate of interest must be annualized so that the borrower is aware of the exact rates that would be charged to the account.
3. Charging of interest is not from the date of sanction of loan or date of execution of loan agreement, and it must be from the date of actual disbursement of the funds to the customer.
4. In the case of disbursal or repayment of loans during the course of the month, charging of interest only for the period for which the loan was outstanding
5. The company is collecting one or more installments in advance but reckoning the full loan amount for charging interest.
6. Though interest rates are not regulated by the RBI, rates of interest beyond a certain level may be seen to be excessive and can neither be sustainable nor confirm normal financial practice. In this regard, the guidelines indicated in the Fair Practices Code about transparency in respect of the terms and conditions of the loans are to be kept in view.

E. Lending against collateral of Gold Jewellery .

While lending to individuals against collateral of gold jewellery, the company shall adopt the following in addition to the general guidelines as above. The sanction terms are in conformity with the Board’s approved policy for loans against gold that shall, inter alia, cover the following:

1. Adequate steps to ensure that the KYC guidelines stipulated by RBI are complied with and to ensure that adequate due diligence is carried out on the customer before extending any loan,
2. Proper assaying procedure for the jewellery received,
3. Internal systems to satisfy ownership of gold jewellery
4. Adequate systems for storing the jewellery in safe custody, reviewing the systems on an on-going basis, training the concerned staff and periodic inspection by internal auditors to ensure that the procedures are strictly adhered to. Normally, such loans should not be extended by branches that do not have appropriate facilities for storage of the jewellery,
5. The jewellery accepted as collateral shall be appropriately insured,
6. Transparent auction procedure in case of non-repayment with adequate prior notice to the borrower.
7. There shall be no conflict of interest and the auction process must ensure that there is an arm’s length relationship in all transactions during the auction including with group companies and related entities
8. The auction shall be announced to the public by issue of advertisements in at least two newspapers, one in vernacular and another in the national daily newspaper
9. As a policy, the company themselves shall not participate in the auctions held,
10. Gold pledged shall be auctioned only through auctioneers approved by the Board,
11. The loan agreement shall also disclose details regarding the auction procedure

1. The borrower availing loan against the collateral of gold must produce a copy of the PAN Card for transaction above Rs 5.00 Lakh in terms of Reserve Bank of India vide Master Direction No DNBR.PD.008/03.10.119/2016-17 dated September 01, 2016
2. Documentation across all branches are standardized.