The Fair Practice Code (FPC) aims to provide its borrowers an effective overview of the practices followed by the Company and to enable borrowers to take informed decisions in respect of the financial facilities and services offered by the Company. The Code covers the general principles on adequate disclosures on the terms and conditions of the loan and the procedures to be followed when dealing with the borrowers.
MFSPL Financial Services Private Limited (in short “MFSPL” or “the company”) is a company incorporated under the provisions of the Companies Act, 2013. It is categorized as a Non-Systemically Important Non-deposit taking NBFC.
The Company has incorporated the FPC guidelines issued by the Reserve Bank of India (RBI) vide its Circular dated September 28, 2006 which was modified from time to time. The same now stands superceded by the Master Direction – Non-Banking Financial Company –Non- Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 issued by the RBI on 1st September 2016. Accordingly, to ensure compliance with the directions of the Bank, the Code duly approved by the Board of Directors is adopted for implementation.
The Company’s business would be conducted in accordance with prevailing statutory and regulatory requirements, with due focus on efficiency, customer-orientation and corporate governance principles. In addition, the Company would adhere to the Fair Practices Code in its functioning, the key elements of which are as follows:
Applications for loan and their processing
Loan application forms shall include necessary information, which affects the interest of the borrower, so that a meaningful comparison with the terms and conditions offered by other NBFCs can be made and the borrower can take an informed decision. The loan application form may also indicate the documents required to be submitted with the application form. All communications to the borrower shall be in the vernacular language or a language as understood by the borrower.
MFSPL shall devise a system of giving acknowledgement for receipt of all loan applications. Further, generally, the time frame within which the loan application will be disposed of would also be indicated in the acknowledgement.
Loan Appraisal and Terms/Conditions
All communications to the borrower will be in vernacular language or a language as understood by the borrower.
All necessary information that may be required by the borrowers with regard to the financial facility that is being applied for are available in the relevant loan application forms. The information would include matters which may affect the interests of the borrower, so that a meaningful comparison with the terms and conditions offered by other NBFCs can be made and informed decisions can be taken by the borrowers.
Besides, the various documents that need to be submitted with the application form are also provided in the application forms. MFSPL would give an acknowledgement for receipt of all loan applications. The normal time frame within which loan applications complete in all respects will be disposed of would be indicated in the acknowledgement of loan applications.
MFSPL would verify the loan applications within a reasonable period of time and if additional details / documents are required, it would intimate the borrowers immediately.
MFSPL shall furnish a copy of the loan agreement as understood by the borrower along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans.
Disbursement of Loans including Changes in Terms and Conditions
MFSPL shall give notice to all its borrowers of any change in the terms and conditions – including disbursement schedule, interest rates, penal interest, service charges, prepayment charges etc. The Company shall also ensure that changes in interest rates and charges are effected only prospectively. A suitable provision in this regard shall be incorporated in the loan agreement.
Decision to recall / accelerate payment or performance under the agreement shall also be in consonance with the loan agreement.
The Company shall release all securities on repayment of its full dues or on realization of the outstanding amount of loan subject to any legitimate right or lien for any other claim the Company may have against its borrowers. If such right of set off is to be exercised, the borrower shall be given notice about the same with full particulars about the remaining claims and the conditions under which the Company is entitled to retain the securities till the relevant claim is settled/paid.
The Company shall refrain from interference in the affairs of the borrower except for the purposes provided for in the terms and conditions of the loan agreement (unless new information, not earlier disclosed by the borrower, has come to the notice of the Company).
In case of receipt of request from the borrower for transfer of borrowal account, the consent or otherwise – i.e., objection of the Company, if any – shall be conveyed to the borrower within 21 days from the date of receipt of any request. Such transfer shall be as per transparent contractual terms in consonance with law.
In the matter of recovery of loans, the Company shall not resort to any harassment – such as persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. The Company shall ensure that the staff is adequately trained to deal with the customers in an appropriate manner.
As a measure of customer protection and to bring uniformity with regard to pre-payment of loan, the company shall not charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers.
The Company shall put the above Fair Practices Code outlined hereinabove on its web site, whenever made, for the information of various stakeholders. The Company would also review and refine the Code, as may be required periodically – based on its own experience and fresh guidelines, if, any, to be issued by the RBI in this regard.
The Board of Directors shall periodically review the compliance of the Fair Practices Code and the functioning of the grievances redressal mechanism at various levels of management. A consolidated report of such reviews shall be submitted to the Board at regular intervals.
Reserve Bank of India (RBI) had vide its Circular DNBS / PD / CC No. 95/ 03.05.002/ 2006-07 dated May 24, 2007 advised that Boards of Non-Banking Finance Companies (NBFC’s) lay out appropriate internal principles and procedures in determining interest rates, processing and other charges.
This was reiterated vide RBI’s circular DNBS (PD) C.C. No. 133 / 03.10.001/ 2008-09 January 2, 2009, whereby which RBI advised the NBFCs to adopt appropriate interest rate model taking into account relevant factors and to disclose the rate of interest, gradations of risk and rationale for charging different rates of interest to different category of borrowers.
MFSPL’s policy should always be read in conjunction with RBI guidelines, directives, circulars and instructions. The company will apply best industry practices so long as such practice does not conflict with or violate RBI guidelines.
In order to ensure its standards of transparency, in conformity with the stipulations of the RBI’s directives, the Company has adopted the following interest rate policy for determining Interest Rates, Processing and Other Charges. This Policy applies to clients whose loans are booked in the Company.
Tenure of the Loan – The interest rate charge will depend on the term of the loan; structure of the loan; terms of payment of interest.
Internal cost loading – The interest rate charged will also take into account costs of doing business.
Internal and External Costs of Funds – The rate of interest charged is also affected by the rate at which the funds necessary to provide loan facilities to customers are sourced, normally referred to as the Company’s external cost of funds. Internal cost of funds being the expected return on equity issued, is also a relevant factor. The interest rate charged will also take into account costs of doing business.
Credit Risk – As a matter of prudence, bad debt provision cost should be factored into all transactions. This cost is then reflected in the final interest rate quoted to a customer. The amount of the bad debt provision applicable to a particular transaction depends on our internal assessment of the credit strength of the customer.
Other Factors – The rate of interest shall be based on the cost of borrowed funds, matching tenor cost, market liquidity, RBI policies on credit flow, offerings by competition, tenure of customer relationship, market reputation, cost of disbursements, inherent credit and default risk in the products and customer per se arising from customer segment, profile of the customers, stability in earning and employment, deviations permitted, ancillary business opportunities, future potential, group strength and overall customer yield, nature and value of primary and collateral securities, past repayment track record of the customers, external ratings of the customers , industry trends, switchover options, canvassed accounts etc.
The company may adopt discrete interest rate model whereby the rate of interest for same product and tenor availed during same period by customers would not be a standardized one but could be different for different customers depending upon consideration of any or combination of a few or all factors listed out above.
The interest amount would be intimated to the customer.
The interest rates may be offered on a fixed, floating, variable basis which would be up to 72% annualised rate of interest.
Interest rates shall be intimated to the customers at the time of sanction/ availing of the loan and the equated instalments/Balloon Payment/Bullet payment apportionment towards interest and principal dues shall be made available to the customer.
All processing / documentation and other charges recovered are expressly stated in the Loan documents. They vary based on the loan product, geographical location, customer segment and generally represent the cost incurred in rendering the services to the customers.
The practices followed by other competitors in the market would also be taken into consideration while deciding the charges.
Processing charges will be charged on case to case basis.
All applicable taxes shall be charged as per the guidelines issued by the Government from time to time.
Besides normal interest, the Company may collect penal interest / late payment charges for any delay or default in making payments of any dues. These penal interest / late payment charges for different products or facilities would be decided by the Company from time to time.
The Company shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges.
The Company shall adopt an interest rate model taking into account relevant factors such as, cost of funds, margin and risk premium, etc and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.
The rates of interest and the approach for gradation of risks shall also be made available to the borrowers. The information should be updated whenever there is a change in the rates of interest.
The rate of interest should be annualised rates so that the borrower is aware of the exact rates that would be charged to the account.
A copy of such terms and conditions shall be made available to the borrowers in terms of circular wherein it was stated that NBFCs may invariably furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction/disbursement of loans, which may form a key component of such contracts/loan agreements.