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by Rakesh Waghela

2.11 Fair Practices, grievance, and recovery

Fair Practices Code (FPC)

Section titled “Fair Practices Code (FPC)”

Rule summary

Section titled “Rule summary”

The Fair Practices Code for NBFCs prescribes how NBFCs must conduct themselves with borrowers — from application through to recovery. The FPC is part of the NBFC Master Direction and additional guidelines have been issued periodically.

Source

Section titled “Source”
  • RBI Fair Practices Code for NBFCs (part of the NBFC – SBR Directions, 2023).
  • RBI Master Direction on Customer Service for NBFCs.

Key obligations

Section titled “Key obligations”

At loan application

Section titled “At loan application”
  • All communications in vernacular language or borrower’s chosen language.
  • Application form to indicate the documents needed.
  • Acknowledgement of receipt of application.
  • Disposal of application within prescribed period (board-approved).
  • If declined, reasons in writing.

Loan appraisal and terms

Section titled “Loan appraisal and terms”
  • Communicate sanction in writing, with all terms including all-in cost.
  • KFS must be issued per the standardised format.
  • Loan agreement in language understood by borrower.
  • Copy of loan agreement furnished to borrower at execution.

Disbursement / changes in terms

Section titled “Disbursement / changes in terms”
  • Changes in terms (interest rate, fees) must be notified with advance notice.
  • Interest-rate changes for existing loans apply prospectively only.

Penal charges

Section titled “Penal charges”
  • Per RBI Penal Charges in Loan Accounts, DOR.MCS.REC.28/01.01.001/2023-24, 18 August 2023:
    • Penal charges must be separate from interest — cannot be added to the principal balance and compounded.
    • Must be reasonable and non-discriminatory.
    • Must be disclosed in KFS and loan agreement.
    • Frequency and computation method disclosed.

Recovery

Section titled “Recovery”
  • Borrower must be informed in writing of intention to recover.
  • Recovery agent details (name, identity, contact) disclosed to borrower before any agent contact.
  • Recovery agents must be trained and certified.
  • Conduct rules — see below.

Grievance redressal

Section titled “Grievance redressal”
  • Dedicated grievance officer with publicly displayed name, designation, contact, escalation route.
  • Time-bound resolution (board-approved SLAs).
  • Escalation to RBI Ombudsman for NBFCs if not resolved.

Recovery-agent conduct rules

Section titled “Recovery-agent conduct rules”

Time-of-day restrictions

Section titled “Time-of-day restrictions”
  • Contact with borrower (and reference / guarantor) restricted to between 8:00 AM and 7:00 PM.
  • Holidays / Sundays — only with borrower’s prior consent.

Place

Section titled “Place”
  • Visits to borrower’s residence / office only at reasonable times.
  • No visits to borrower’s relatives / friends without their consent.

Conduct

Section titled “Conduct”
  • No harassment, no use of force or threat.
  • No misrepresentation of identity or affiliation.
  • No use of abusive language.
  • Call recording mandatory; recordings retained for inspection.
  • Calls must identify the lender, the agent, and the purpose.

Misconduct consequences

Section titled “Misconduct consequences”
  • Borrower complaints → investigation → if substantiated, action against agent / agency, written apology, sometimes compensation.
  • Repeat / serious misconduct can trigger RBI action against the NBFC.

Internal Ombudsman

Section titled “Internal Ombudsman”

Rule summary

Section titled “Rule summary”

NBFC-UL and certain NBFC-ML categories must appoint an Internal Ombudsman (IO) — a senior independent officer who reviews complaints not resolved at the first / second level, before the borrower escalates to the RBI Banking Ombudsman.

Source

Section titled “Source”
  • RBI Master Direction – Internal Ombudsman for Regulated Entities, latest version on rbi.org.in.

Applicability

Section titled “Applicability”
  • Mandatory for NBFC-UL and specified larger NBFC-ML.
  • Recommended best practice for smaller NBFCs.

RBI Ombudsman for NBFCs

Section titled “RBI Ombudsman for NBFCs”
  • Borrowers can escalate to RBI’s Banking Ombudsman Scheme for Non-Banking Financial Companies if not resolved internally.
  • The ombudsman investigates and can direct corrective action and compensation.

Product implications

Section titled “Product implications”
  • Vernacular language toggle in every borrower journey.
  • Reasoned decline workflow — when declining, the system records the reason and produces a written decline letter.
  • KFS with penal-charges separate — UX makes penal charges visibly distinct.
  • Recovery agent disclosure sent to borrower in advance.

System implications

Section titled “System implications”
  • Decline reason taxonomy — every decline records a reason code with explanation.
  • Decline letter generation automated.
  • Penal charges ledger — separate ledger entries; never compounded into principal.
  • Recovery agent master — every agent with training certificates, current ID, active / inactive status.
  • Recovery agent assignment — system assigns; intimation auto-sent to borrower.
  • Call recording integration — every collection call routed via a dialer that records and stores.
  • Visit logging — field agent app captures geo-tagged photo, timestamp, outcome.
  • Grievance log — every complaint timestamped with SLA, owner, status, resolution.
  • Internal Ombudsman queue for escalation.
  • Complaint analytics — recurring complaint patterns flagged.

Documents that must be generated

Section titled “Documents that must be generated”
  • Written decline letter.
  • Sanction letter and loan agreement (in chosen language).
  • KFS.
  • Recovery agent intimation.
  • Grievance acknowledgement and resolution letters.
  • Internal Ombudsman case files.

Workflow that must exist

Section titled “Workflow that must exist”
  • Decline workflow with reason capture.
  • Customer-language preference capture and persistence.
  • Recovery agent training and certification refresh.
  • Recovery call / visit workflow with audit trail.
  • Grievance lifecycle.
  • Internal Ombudsman escalation.

Reports that must be produced

Section titled “Reports that must be produced”
  • Grievance volume and resolution time, monthly.
  • Repeat complaint analysis quarterly.
  • Recovery agent conduct audit quarterly.
  • Internal Ombudsman activity report.
  • Ombudsman complaint summary annually.

Audit evidence required

Section titled “Audit evidence required”
  • Grievance log with timestamps and resolutions.
  • Call recordings and visit logs.
  • Decline letters issued.
  • Recovery agent training records.
  • Internal Ombudsman case files.

Sources

Section titled “Sources”
  • RBI Fair Practices Code for NBFCs (part of NBFC – SBR Directions, 2023).
  • RBI Penal Charges in Loan Accounts, DOR.MCS.REC.28/01.01.001/2023-24, 18 August 2023.
  • RBI Master Direction – Internal Ombudsman for Regulated Entities, latest on rbi.org.in.
  • RBI Banking Ombudsman Scheme (covers NBFCs), latest scheme on rbi.org.in.