Fair Practice Code- Microfinance Loans

Reserve Bank of India vide its notification No [Link].95/03.10.038/2021-22 dated

Applications for Loan

1.1 All collateral free loan provided by the Bank to low-income households, i.e.
households having annual income up to Rs.3,00,000, irrespective of end use shall
be classified as Microfinance loan. For this purpose, the household shall mean an
individual family unit i.e. husband, wife and their unmarried children.
1.2 To ensure collateral free nature of the microfinance loan, the loan shall not be linked
with a lien on the deposit account of the borrower.
1.3 Bank shall submit the information regarding household income of the Microfinance
borrowers to the Credit Information Companies (CICs).
1.4 In the loan application, Bank shall disclose pricing related information to a
prospective borrower in a standardized simplified factsheet.
1.5 Any fees to be charged to the microfinance borrower by the Bank shall be explicitly
disclosed in the factsheet.
1.6 The borrower shall not be charged any amount which is not explicitly mentioned in
the factsheet.
1) Processing & Loan Assessment
2.1 The Bank shall provide acknowledgement for receipt of all loan applications.
2.2 The Bank shall verify the loan application with a reasonable period.
2.3 While assessing eligible loan amount, Bank shall take into account loan repayment
obligations on account of all outstanding loans (collateral free microfinance loans as
well as any other type of collateralized loans) of the household. The outflow shall be
capped at 50% of the monthly household income including repayments (including both
principal as well as interest component) towards all existing loans as well as the loan
under consideration.
2.4 Existing loans for which outflow on account of repayment of monthly loan
obligations of a household as a percentage of the monthly household income exceed the
limit of 50%, shall be allowed to mature. However, in such cases, no new loans shall
be provided to these households till the prescribed limit of 50% is complied with.
2.5 There shall be no pre-payment on microfinance loans.
2.6 Bank shall prominently display the minimum, maximum and average interest rates
charged on microfinance loans in our branches, in the information booklets/pamphlets
issued by us and details on our website.
2.7 Any change in interest rate or any other charge shall be informed to the borrower
well in advance and these changes shall be effective only prospectively.
2.8 Bank to use standard common loan agreement for microfinance loans which is
available in Hindi, English and regional languages.
2.9 The Bank shall provide a loan card to the borrower which shall incorporate the
following:
a) Information which adequately identifies the borrower;
b) The effective rate of interest charged;
c) All other terms & conditions attached to the loan;
d) Acknowledgements by the Bank of all repayments including instalments
received and the final discharge; and
e) Details of the grievance redressal system, including the name and contact number
of the nodal officer of the Bank.
2.10 All entries in the loan card shall be in vernacular language.
2.11 Issuance of non-credit products shall be full consent of the borrowers and fee
structure for such products shall be explicitly communicated to the borrower in the loan
card itself.
2) Recovery
3.1 Recovery of dues shall be made at the designated place decided mutually by the
borrower and the Bank and mentioned in the loan card itself.
3.2 Bank shall not engage in any harsh methods towards recovery. Without limiting the
general application of the foregoing, following practices shall be deemed as harsh:
a) Use of threatening or abusive language;
b) Persistently calling the borrower and/or calling the borrower before 9:00 a.m. and
after 6:00 p.m.;
c) Harassing relatives, friends or co-workers of the borrower;
d) Publishing the name of borrower;
e) Use or threat of use of violence or other similar means to harm the borrower or
borrower’s family/assets/reputation;
f) Misleading the borrower about the extent of the debt or the consequences of non-
repayment
3) Grievance Redressal
4.1 Bank shall provide a robust customer grievance redressal system to address
customer complaints in an effective and timely manner.
4.2 Bank shall clearly communicate the details of customer grievance redressal in
branches, loan documents and other communication materials.
4.3 Assure the customer shall be treated fairly despite the grievance being lodged.
4.4 Bank shall be accountable for inappropriate behavior employees or employees of
the outsourced agency.

The grievance escalation matrix is furnished as under:

Sl No. Level Officer in charge

If not satisfied with the reply/action taken by the above, they can escalate the
matter to:
2 Regional Office Regional Head

If not satisfied with the reply/action taken by the above, they can escalate the
matter to:
3 Zonal Office Zonal Head

If not satisfied with the reply/action taken by the above, they can escalate the
matter to:
4 Corporate Office General Manager- BC/BF Cell,
Corporate Office, Mumbai
Phone Number:022-66553355,
66553120