Banks liable for delaying loan sanction

Pushpa Girimaji

THE global financial crisis has really made banks nervous. Many of them say that they have put in place a stricter scrutiny procedure for giving loans, so as to ensure that the loans that they give are repaid regularly, and that there are no defaults. In other words, banks are making every effort to ensure that their interests are protected. Fair enough, after all, on the health of a bank depends the financial security of its depositors and also investors.

However, what is unfortunate is that banks that follow so much of procedure when it comes to scrutinising and sanctioning a loan, do not follow a simple guideline formulated by the banking regulator to protect the rights of those taking the loan. I am referring to the RBI guidelines on the Fair Practices Code for Lenders, which the banks are supposed to adopt and stringently follow. Broadly, the guidelines call for fair play and transparency in the processing and disbursal of loans. And most important, it requires banks to furnish copies of all the documents signed by the client at the time of taking the loan, which again, banks normally flout.

So much so that the RBI had sometime ago warned banks against it, and said that failure to furnish the copies of all the documents constituted an unfair trade practice. As per the RBI guidelines, the loan application should provide complete information about the fee/charges payable for processing, the amount of such fee refundable in case of non-acceptance of application, advance payment and closure (of loan) options, and any other matter which affects the interest of the borrower. The bank should also list out, right in the beginning, all the documents needed for processing the loan.

Another requirement under the guidelines is that banks should acknowledge receipt of all loan applications, and inform the applicant of the time taken for processing it. If there is any delay, the consumer should be informed, and if the application is rejected, the bank should give in writing, the reason for it. Once the loan is sanctioned, the bank has to put in writing the terms and conditions governing the credit facilities, the rate of interest charged, the equated monthly instalments, penalty, if any, for early payment and closure of the loan account, etc, and have the agreement certified by an authorised bank official, and furnish a copy of this, and also copies of all the enclosures in the loan agreement, to the borrower, without his or her asking for it.

I think I have touched upon some these guidelines in one of my columns earlier, but what I would like to emphasise is that customers can now complain to the Banking Ombudsman for violations of the Fair Practices Code adopted by the bank. So whenever you apply for a loan, always arm yourself with the Fair Practices Code for Lenders, and do not allow banks to get away with violations of your right as a consumer. You can, in fact, ask the bank for a copy of the code. You can even download it from their websites and ensure that the bank follows it strictly. It is in your interest.

Consumers can also lodge a complaint with courts for any loss or injury caused on account of the banks’ failure to follow the Fair Practices Code for Lenders. Courts have also held that inordinate delay in processing loan papers, or not releasing the sanctioned loan amount, constitutes deficiency in the service rendered by banks, and have awarded compensation to clients affected by such deficiency. So banks had better start thinking about the right of depositors, too.

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