<p>The Reserve Bank of India has issued new fair practice guidelines for the MFI (micro finance institutions) and gold loan NBFCs (non-banking finance companies) under which these companies will have to ensure that adequate due diligence is carried out On customers.<br /><br /></p>.<p>As per the new rules, prior notice has to be sent out to gold loan borrowers if non-payment of loans compel NBFCs to auction jewellery kept as collateral. Also, the NBFCs will have to announce the auction through advertisement placed on at least two newspapers and they cannot participate in such auctions.<br /><br />That apart, pledged gold will have to be auctioned only through board-approved auctioneers and the loan agreement should also disclose auction procedure details.<br /><br />Further, the guidelines said that jewellery taken as collateral needs to be appropriately insured and the NBFCs must ensure an adequate system for storing them in safe custody. <br /><br />Other key points of the guidelines envisage that code in vernacular language is to be displayed by an NBFC-MFI in its office and branch premises. Also field staff to make necessary enquiries with regard to existing debt of the borrowers.<br /><br />Effective rate of interest charged, grievance redressal system should be prominently displayed, while due diligence should be carried out to ensure the repayment capacity of the borrowers.<br /><br />All sanctioning and disbursement of loans should be done only at a central location. More than one individual should be involved. Loan agreement be detailed and contain all necessary conditions. The borrower cannot be a member of more than one SHG (self help group) or Joint Liabilities Group (JLG).<br /><br />On non-coercive methods of recovery, field staff should be allowed to make recovery at residence only if borrower fails to appear at central designated place on 2 or more occasion.<br /><br />Term deposits<br /><br />Meanwhile, RBI has asked banks to avoid offering sharply different rates on deposits with similar maturities, saying that something is wrong with lenders if their retail and bulk deposit rates vary too much.<br /><br />“If it (the difference between retail and bulk deposit rates) varies too much, then there is something wrong,” Reserve Bank Deputy Governor K C Chakrabarty said.<br />He asked banks to discourage moves to offer sharply different rates on deposits with very little differences in maturities.<br /><br />Banks offer higher rates for bulk deposits to shore up their balance sheets, say industry observers. <br />A 3-month deposit attracts as much as 11 per cent, while a similar tenure retail deposit gets around 7 per cent only.<br /><br />Chakrabarty was talking on the sidelines of a function organised by the Centre for Advanced Financial Research and Learning (Cafral) here. <br /></p>
<p>The Reserve Bank of India has issued new fair practice guidelines for the MFI (micro finance institutions) and gold loan NBFCs (non-banking finance companies) under which these companies will have to ensure that adequate due diligence is carried out On customers.<br /><br /></p>.<p>As per the new rules, prior notice has to be sent out to gold loan borrowers if non-payment of loans compel NBFCs to auction jewellery kept as collateral. Also, the NBFCs will have to announce the auction through advertisement placed on at least two newspapers and they cannot participate in such auctions.<br /><br />That apart, pledged gold will have to be auctioned only through board-approved auctioneers and the loan agreement should also disclose auction procedure details.<br /><br />Further, the guidelines said that jewellery taken as collateral needs to be appropriately insured and the NBFCs must ensure an adequate system for storing them in safe custody. <br /><br />Other key points of the guidelines envisage that code in vernacular language is to be displayed by an NBFC-MFI in its office and branch premises. Also field staff to make necessary enquiries with regard to existing debt of the borrowers.<br /><br />Effective rate of interest charged, grievance redressal system should be prominently displayed, while due diligence should be carried out to ensure the repayment capacity of the borrowers.<br /><br />All sanctioning and disbursement of loans should be done only at a central location. More than one individual should be involved. Loan agreement be detailed and contain all necessary conditions. The borrower cannot be a member of more than one SHG (self help group) or Joint Liabilities Group (JLG).<br /><br />On non-coercive methods of recovery, field staff should be allowed to make recovery at residence only if borrower fails to appear at central designated place on 2 or more occasion.<br /><br />Term deposits<br /><br />Meanwhile, RBI has asked banks to avoid offering sharply different rates on deposits with similar maturities, saying that something is wrong with lenders if their retail and bulk deposit rates vary too much.<br /><br />“If it (the difference between retail and bulk deposit rates) varies too much, then there is something wrong,” Reserve Bank Deputy Governor K C Chakrabarty said.<br />He asked banks to discourage moves to offer sharply different rates on deposits with very little differences in maturities.<br /><br />Banks offer higher rates for bulk deposits to shore up their balance sheets, say industry observers. <br />A 3-month deposit attracts as much as 11 per cent, while a similar tenure retail deposit gets around 7 per cent only.<br /><br />Chakrabarty was talking on the sidelines of a function organised by the Centre for Advanced Financial Research and Learning (Cafral) here. <br /></p>