The Fair Practices Code (FPC) is a mandatory framework issued by the Reserve Bank of India (RBI) for applicable Non-Banking Financial Companies (NBFCs). It sets ethical standards and ensures responsible lending, transparency, and customer protection throughout the borrower–lender relationship.
Purpose and Objectives of the FPC
The key goals of the Fair Practices Code are to:
*Ensure Transparency – Provide clear, simple communication of loan terms, charges, and conditions in a language understood by borrowers.
* Promote Fair Treatment– Adopt non-coercive lending and recovery practices, avoiding harassment or discrimination.
* Facilitate Informed Decisions – Disclose all charges, including interest rates, fees, and penalties, upfront.
* Build Customer Confidence – Deliver professional, unbiased services, free from discrimination based on religion, caste, or gender.
* Strengthen Grievance Redressal– Resolve customer complaints effectively through a structured internal mechanism.
Key Provisions of the Fair Practices Code
. Loan Application & Processing
* Provide loan forms in the borrower’s local language.
* Acknowledge receipt of loan applications.
* Clearly specify required documents.
2. Loan Appraisal & Terms
* Issue sanction letters/agreements with full disclosure of loan amount, annualized interest rate, charges, and penal interest.
* Obtain written acceptance from borrowers.
3. Recovery Practices
* Use fair, respectful, and non-coercive methods in collections.
* Avoid harassment of borrowers.
4. Privacy of Information
* Protect customer data.
* Share details only with borrower consent or when legally required.
5. Disclosure Norms
* Provide updated information about products, interest rates, fees, and rights of customers.
* Ensure borrowers can make informed choices.
6. Grievance Redressal
* Establish an effective complaints mechanism.
* Ensure timely and fair resolution of issues.
Compliance and Monitoring
* Every NBFC must adopt the FPC as a Board-approved policy.
* Implementation is reviewed during RBI inspections.
* Non-compliance may invite regulatory action or corrective measures.
Quick Snapshot – Fair Practices Code for NBFCs
| Area | FPC Requirement |
| Loan Application | Forms in local language, acknowledgment, list of documents |
| Loan Sanction & Terms | Sanction letter with interest, charges, penalties disclosed |
| Recovery Practices | Non-coercive, respectful methods; no harassment |
| Data Privacy | Maintain confidentiality; disclose only with consent/legal need |
| Disclosures | Clear, updated details on products, fees, borrower rights |
| Grievance Redressal | Effective internal mechanism; prompt resolution |
✅ In essence: The Fair Practices Code is the ethical backbone of NBFC operations in India. By enforcing transparency, fairness, and accountability, it helps build trust and ensures responsible lending in the financial sector.
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Disclaimer:
The information provided herein is exclusively for educational purposes based on publicly available sources and subject to change. The author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/real estate decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
