education loans

In a recent notification, the Reserve Bank of India (RBI) has noted that

It is understood that some banks are furnishing a copy of the loan agreement only on request made by the borrowers. In this connection, we advise that not furnishing a copy of the loan agreement or enclosures quoted in the loan agreement is an unfair practice and this could lead to disputes between the bank and the borrower with regard to the terms and conditions on which the loan is granted.

The RBI has therefore directed all Scheduled Commercial Banks and Financial Institutions to

…invariably furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans.

While the RBI does a decent job of posting such notifications on its website, it’s certainly not the most effective way to reach the intended recipients – the people who take the loans. After all, how many among you take time off every week to read up on the RBI’s website?

Maybe it’s time the RBI started a consumer-education initiative; a weekly front-page column in a few leading newspapers should be a good start. What do you think?

Previous issues of Know Your Rights:

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Public Service Announcement

From a recent RBI circular:

Guidelines on Fair Practices Code for Lenders

Earlier, Banks/FIs were advised 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.

The RBI now says:

With a view to achieving greater transparency and in the light of experience gained, it has been 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.

Banks/FIs were so far advised that in the case of small borrowers seeking loans up to Rs. 2.00 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.

The RBI has amended that to:

On a review, it has been decided that in case of all categories of loans irrespective of any threshold limits, including credit card applications, Banks/FIs should convey in writing the main reason(s) which, in the opinion of the Bank/FI have led to rejection of the loan applications.

Necessary modifications in the Fair Practices Code based on the above instructions, with the approval of the Board, should be carried out 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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