The Finance Industry Development Council (FIDC), the representative body of non-banking financial companies (NBFC), on Thursday issued a code of conduct for its members. The code focuses on the need to enhance responsible lending behaviour, and ensure ethical practices while conducting the business.
“This code of conduct shall be a step in the right direction to restore the confidence in the non-bank lending community, as this shall bring better discipline and harmony among NBFC-ICCs,” the FIDC said.
The FIDC in a number of occasions asked its members to review implementation of key norms. However, it decided to issue a code of conduct in the backdrop of the RBI’s scale-based regulations and the latest directions on outsourcing of financial services.
The code of conduct is applicable to all FIDC members, which are also regulated entities of the RBI. Members will be required to provide, in writing, their immediate acceptance of the code for continuation of their membership.
This code is subject to review by the FIDC from time to time. Separate FIDC advisories on procedural and operational aspects will also be part of the code until it is superseded by revised guidelines.
The code encompasses norms on corporate governance, risk management, audit requirements, outsourcing arrangements, and engagement of recovery agents and collection agencies.
According to the code, NBFCs must ensure fit and proper status of directors on an on-going basis and appoint independent directors on key board-level committees. They must also ensure mandated and desirable disclosures in financial statements.
NBFCs must put strong internal systems in place and promote good governance practices. They must create awareness among borrowers about the recovery agency engaged by it as well as authorised agents. NBFCs must also ensure that all employees are trained and instructed to follow fair practices in accordance with RBI norms.
All categories of NBFCs are required to appoint a risk management committee at the board or executive level, which shall report to the board of directors.
NBFCs must undertake an independent risk assessment to formulate an audit plan which considers the inherent business risks emanating from an activity or location, and the effectiveness of the control systems for monitoring such risks.
Separately, NBFCs must put in place a board approved policy for addressing customer complaints in a fair and prompt manner, and an effective grievance redressal mechanism.
NBFCs shall not resort to any abusive, violent, unethical methods of collection or coercive recovery practices and all recovery efforts shall be in accordance with the RBI guidelines.