Annexure to H.O. Circular No. C&I/04/2007.08 Dtd. 18.04.2007
Revised version of H.O. Circular No. C&I/13/2003.04 Dtd. 17.12.2003
STATE BANK OF SAURASHTRA, HEAD OFFICE BHAVNAGAR
C&I DEPARTMENT

C I R C U L A R
All offices of the Bank

C&I/13/2003-2004
Date: 17.12.2003

Fair Practices Code on Lenders' Liability - RBI guidelines

On the basis of the recommendations of the Working Group on Lenders' Liability Laws constituted by the Government of India, RBI have issued guidelines to introduce a set of Fair Practices Code for lenders, vide RBI letter No. DBOD.Leg. No. BC.104/09.07.007/2002-03 dated 5th May 2003. It is observed that our Bank's existing practices are in general conformity with the Fair Practices Code suggested by RBI. How-ever, we set out in the following paragraphs codified operative instructions. Branches may take note of the instructions for careful compliance.

(A) Applications for loans and their processing

1. Loan application forms shall include information about rate of interest (fixed/floating) and manner of charging (monthly/quarterly/half-yearly/yearly rests), processing and other charges, if any, the amount of such fees refundable in case of non acceptance of application penal interest rates, pre-payment options and any other matter of interest to the borrower, thereby enabling the borrower to make meaningful comparison of the covenants with those offered by other banks and arrive at an informed decision. Additions wherever necessary, say, regarding processing and other charges, may be made by way of suitable rubber stamps on the existing standard application forms.

2. There will be a system of giving acknowledgment by the branch for receipt of all loan applications. Loan applications upto Rs.2.00 lakhs are to be verified within a reasonable period of time, not exceeding one month, and the borrower may be asked to furnish any additional details or documents immediately. The time-frame as above should be conveyed in the acknowledgement of loan applications upto Rs.2.00 lakhs. In the case of small borrowers seeking loans upto Rs.2 lakhs, the branch should convey in writing the main reasons which in the opinion of the branch, have led to rejection of the loan application within the stipulated time. In the case of loan applications, irrespective of the quantum of loan applied for, if not found admissible, the decision should be conveyed in writing to the applicant borrower quoting the reasons for rejection. A format indicating generic reasons for rejection of loan proposals is enclosed as Annexure-I. It should be ensured that loan rejections are not used as a means to inconvenience small borrowers.

(B) Loan appraisal and terms/conditions

1. Branch while appraising loan proposals shall undertake due diligence on the credit-worthiness of the borrower and will not use margin or security stipulation as a substitute for this requirement of creditworthiness.

2. Branch should convey to the borrower in writing the credit limit along with the terms and conditions thereof and keep the borrower's acceptance of these terms and conditions given with his full knowledge on record.

3. A copy of the loan agreement along with a copy each of all relevant enclosures quoted in the loan agreement should be furnished to the borrower.

4. As far as possible the loan agreement should clearly stipulate credit facilities that are solely at the discretion of the Bank. In other words, the borrower has to be advised that

(a) he has no right to draw/issue cheques, exceeding the drawing power/sanctioned limit, whichever is lower, or, draw/issue cheques for purpose other than specifically agreed to in the loan sanction.

(b) The borrower will be advised that the Bank reserves its right to disallow drawings on a borrowal account on its being classified as a non-performing asset or on account of non-compliance with the terms of sanction.

(c) It may also be specifically stated that the Bank does not have an obligation to meet further requirements of the borrowers on account of growth in business etc. without proper review of credit limits.

(d) In the case of lending under consortium arrangement, the participating Banks should note to complete appraisal of proposals in a time-bound manner to the extent feasible and communicate their decisions on financing or otherwise within a reasonable time not exceeding three months from the date of acknowledgement of borrower's application. Clauses (a), (b) and (c) may be suitably added to the existing standard loan agreement forms.

(C) Disbursement of loans including changes in terms and conditions

1. Branches should ensure timely disbursement of loans sanctioned in conformity with the terms and conditions governing such sanction.

2. Branches should give notice of any change in the terms and conditions including interest rate, service charges etc. Branches shall ensure that changes in interest rates and charges are effected only prospectively.

(D) Post-disbursement supervision

1. Branches should ensure post-disbursement supervision in a constructive manner, particularly in respect of loans upto Rs.2.00 lakhs.

2. Before taking a decision to recall/accelerate payment or performance under the agreement or seeking additional securities, branches are to give a notice to borrowers as specified in the loan agreement or a reasonable period, say 3 months, if no such condition exists in the loan agreement. However, the issuance of notice can be waived where period of limitation is approaching and documents are likely to expire.

3. The lending branch shall take note to release all securities on receiving payment or realization of loan subject to any legitimate right of lien for any other claim the branch may have against the borrower. If such a right of set-off is to be exercised, the branch shall serve the borrower with a notice about the same with full particulars about the remaining claims and the documents under which the Bank is entitled to retain the securities till the relevant claims are settled/paid.

( E) General

1. Branch as a rule should refrain from interference in the affairs of the borrowers except for what is provided in the terms and conditions of the loan sanction documents, unless some new information, not earlier disclosed by the borrower, has come to the notice of branch management.

2. Bank will not discriminate on grounds of sex, caste and religion in the matter of lending. However, this does not preclude the Bank from participating in credit-linked schemes framed for weaker sections of the society.

3. Branches will note not to resort to undue harassment, in the matter of recovery of loans, viz., persistently bothering the borrowers at odd hours, use of muscle power, etc.

4. In case of receipt of request for transfer of borrowal account, either from the borrower or from a bank/financial institution, which proposes to take over the account, the consent or objection of the Bank (existing) should be conveyed within 21 days from the date of receipt of request.

The Fair Practices Code on Lenders' Liability require the establishment of a grievance redressal mechanism. The mechanism will ensure that all disputes arising out of the decisions of the bank's functionary are heard and disposed of at least at the next higher level.

Please note that the above guidelines are applicable to all loan applications for all segments irrespective of the amount of the limit.

M M Pathak

General Manager (C&IB)

Enclosure to H.O. Cir. No. C&I/13/2003-04 Dated 17/12/2003

Annexure-I

Format for conveying reason(s) leading to rejection of loan proposal

To,

.....................
.....................

(Addressed to the applicant)

Dear Sir,

Your loan proposal dated ________________ for Rs._________________

We refer to your above noted loan proposal. After due consideration, the proposal for finance has not been approved for the undernoted reason/s :

(i) The Bank has reservations on the loan servicing capacity of the project/venture.

(ii) The proposal is not in tune with the credit policy/credit quality requirement of the Bank.

(iii) You do not reside/your project is not located within the service area of the Branch.

(iv) You have failed to produce No Dues Certificate/No Objection Certificate from _______________ Branch/Bank.

(v)

(vi)

(viii) 

Yours faithfully,

BRANCH MANAGER