CONSUMER RIGHTS
Tips on taking loans
Pushpa Girimaji

Are you aware that banks and financial institutions that give you loans are supposed to follow a code of practice meant to ensure transparency and fair play? Or that they are supposed to give you a copy of every document that you sign and also tell you in advance the charges that you incur for processing of the loan, the rate at which the interest would be charged, pre-closure penalties if any, the processing fee that may be refunded in case the application is rejected and also provide a grievance redress machinery? Or that if your application is rejected, the reasons should be given in writing. Or that the banks are expected to give you an acknowledgement of your application, informing you of the time frame within which the bank would be able to process your application?

The Fair Practices Code for Lenders provides for these and many more guidelines that the banks are supposed to put up on their websites, publicise for the benefit of their customers and also follow stringently. Not all banks, however, think it fit to do so. In fact, they find it convenient to keep their customers ignorant about it. As the regulator, the Reserve Bank of India should conduct a survey on compliance of the code and take action against erring banks.

On the basis of the recommendations of the Working Group on Lenders’ Liability Laws constituted by the Government of India, the RBI had in 2003 issued guidelines on Fair Practices Code for Lenders and asked all banks to adopt the guidelines and follow them. "Banks and financial institutions 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 above guidelines. For this purpose, the Boards of banks and financial institutions should lay down a clear policy.

The Board of Directors should also lay down an appropriate grievance redressal mechanism within the organisation to resolve disputes arising in this regard. 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 controlling offices," the RBI had said.

Broadly, the guidelines say that loan application forms in respect of priority sector advances up to Rs 2 lakh should be comprehensive. They should include information about the fees/charges, if any, payable for processing, the amount of such fees refundable in 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.

The guidelines also say that banks should acknowledge receipt of all loan applications and process these as quickly as possible and in case of small borrowers up to Rs 2 lakh, even specify the time limit within which the application would be disposed of. And if the application is rejected, the bank should give in writing, the reason for it.

The code also specifies that in the matter of recovery of loans, the lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans.

So whatever the purpose of the loan—personal or business, to buy a house or a home appliance, furniture or vehicle, ask the bank for a copy of their Fair Practices Code. Read it carefully and ensure that the bank follows the code in letter and in spirit. Get all details about the loan, including the lending rate, terms and conditions, penalty for early closure if any. Also ask about the processing fee and whether it would be returned in case the bank rejects the loan application or you decide not to take it.

Keep a copy of every document that you sign and make sure that the bank gives you a receipt for every original document that you have given them, particularly papers pertaining to property or insurance polices or share certificates that may have been pledged. There have been at least two cases in the recent past before the apex consumer court where such papers have either been lost or misplaced by the bank.

So do not leave anything to chance. Keep all documents safe. And if you have any complaint, write to the Reserve Bank. You can also approach the Banking Ombudsman for redressal of your grievance.

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