The Industrial and Financial Reconstruction Association for Small and Tiny Enterprises (IFRASTE) is seeking a ‘Lenders Liability Bill’ replacing the present fair practices code of the Reserve Bank of India (RBI) for lenders from the Banking Codes and Standards Board of India (BCSBI), which proposes to bring out a new ‘Code of Bank’s Commitment to Micro and Small Entrepreneur Customers’.
A small working group with representatives from select member banks, Indian Banks Association and RBI has been constituted to frame a draft code.
In a set of proposals for the formulation of such a code, IFRASTE president, DE Ramakrishnan has suggested that the new code should ensure speedy processing of loan applications by SMEs according to RBI guidelines. He said, credit limits should be flexible and should be raised as ”a short-term measure and also as an annual feature within set time limits”.
Details about the services and products provided by a bank should be more clear and explicit. Bank branches should prominently display various schemes like Credit Guarantee Scheme, schemes for technical upgradation and modernisation, soft loans, for equity like NEF, Mahila Udayam Nidhi and other schemes for women, as also schemes for the down trodden and less privileged.
The association is also seeking more transparency and prominence in the ”display of the banking ombudsman scheme and information on interest rates, common fees and charges”.
Ramakrishnan said, ”as per the code, customers are supposed to be informed about the interest rates, when interest would be charged, how interest is to be charged and the method of calculation of such interest to their loan accounts. This is seldom done in the manner promised and if done is done in the most opaque manner.” He wants the new code to change this scenario.
The statement of accounts should reflect the daily product of outstanding amounts and the rate of interest applied. Principal and interest should be shown separately. The IFRASTE also wants advance notice about increase in service charges, interest rates etc.
It is also proposed that the collection of dues should be done professionally after giving sufficient notice without interfering with the personal life of the borrowers.
”It is suggested that the grievance reddressal mechanism, limited to a maximum of three tiers, should be spelt out clearly with contact numbers of the officers concerned.”
The code should mandate the banks to ”make a clear and categorical differentiation in the treatment of a defaulter by circumstances and a willful defaulter as defined by the RBI,” Ramakrishnan said.