The Hindu : Business : RBI draft fair practices code for NBFCs

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Saturday, May 27, 2006

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Business

RBI draft fair practices code for NBFCs

Special Correspondent

Redressal mechanism to solve disputes to be put in place

MUMBAI: The Reserve Bank of India (RBI) on Friday, published draft guidelines under which the boards of directors of non-banking finance companies (NBFCs) have to lay down an appropriate grievance redressal mechanism within their organisation to resolve disputes arising out of the decisions of the lending institutions' functionaries.

"Such a mechanism should ensure that all disputes arising out of the decisions of lending institutions' functionaries are heard and disposed of at least at the next higher level. The board of directors should also provide for periodical review of the compliance of the Fair Practices Code and the functioning of the grievances redressal mechanism at various levels of management. A consolidated report of such reviews may be submitted to the board at regular intervals, as may be prescribed by it," RBI stated in its draft guidelines on a Fair Practices Code for NBFCs. The apex bank invited responses to the guideline by June 9.

A Fair Practices Code based on the guidelines outlined by the RBI should be put in place by all NBFCs with the approval of their boards at the earliest possible, but not later than June 30, it stated.

However, NBFCs will have the freedom of drafting the Fair Practices Code, enhancing the scope of the guidelines but in no way sacrificing the spirit underlying the guidelines prescribed by the central bank. "The same should be put up on their web-site, if any, for the information of various stakeholders," RBI stated. NBFCs should refrain from interference in the affairs of the borrower except for the purposes provided in the terms and conditions of sanction of the loan (unless new information, not earlier disclosed by the borrower, has come to the notice of the lender).

In case of receipt of request for transfer of borrowal account, either from the borrower or from a lender which proposes to take over the account, the consent or otherwise should be conveyed within 21 days.

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