As the ancient saying goes “A banker is a person who lends you his umbrella when its bright, cheerful sunshine; but demands it back at the slightest indication of bad weather!”
Well its as ironic (and darkly humorous) as it is true! Perhaps to partially mitigate the hardship of the borrowers and ensuring a more level-playing field, the Reserve Bank of India (RBI) has recently issued an advisory. The Fair Practices code reiterates the need for banks and other financial institutions to practice more transparent functioning. It underlines that all information regarding charges/fees for processing of loan application forms must be disclosed and that these institutions must inform ‘all-in-cost’ to the customer so as to facilitate the customer to make an informed decision by clearly understanding and comparing the rate-structures/fees etc of other similarly placed sources of finance.
RBI has issued this new advisory since it came to its knowledge that some banks are charging over and above the defined/declared processing fee, without disclosing this to the borrower in the first instance. Such practice has categorically been labelled as unfair practice.
Incidentally, such unfair practices were rampant despite clear RBI Guidelines issued in March 2007, wherein banks/FIs were advised that loan application forms in respect of all categories of loans, irrespective of the amount of loan sought by the borrower, should be comprehensive and should include information about the fees/charges, if any, payable for processing. Furthermore, the amount of such fees should be refundable in cases of non acceptance of application, pre-payment options and any other matter which affects the interest of the borrower.
The underlying rationale of the new advisory (as also the earlier one) is to facilitate the borrower in making an informed decision after comparing the offerings of various lending institutions in a free and fair manner.
Hopefully the Regulator has finally curbed truant behaviour of lending institutions.
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