Fair Practices Code for Lenders
One RBI code covers the whole loan, from application to closure. Its recovery line is why DRA rules exist.
The Fair Practices Code (FPC) is RBI's rulebook for how a lender treats a borrower, from the loan application to the day the last EMI is paid. Every bank must adopt its own board-approved code built on RBI's guidelines and put it on its website.
RBI first issued the guidelines in May 2003 and has expanded them since. Today they are part of RBI's Responsible Business Conduct Directions. One line in the code is the reason recovery agents exist under rules at all: no harassment in recovery.
You save ₹200 today
- Full 100-question mocks
- Recovery law coverage
- Module-wise practice
One payment, no subscription · Valid for 2 months
What the Code Requires at Each Stage
| Stage | What the lender must do |
|---|---|
| Application | Disclose all fees and charges, the refundable part if the loan is not sanctioned, prepayment charges and penalties. Acknowledge every loan application. |
| Decision | Verify applications in reasonable time. If rejecting any loan, including a credit card, give the main reasons in writing. |
| Sanction | Give the borrower the terms in writing, record their acceptance, and hand over a copy of the loan agreement with all enclosures. |
| Disbursement | Disburse on time. Give notice of any change in interest rate or charges, and apply changes only going forward. |
| After disbursement | Give notice before recalling the loan, demanding faster repayment or asking for more security. |
| Closure | Release all securities on full repayment, subject to any legitimate lien, with notice if one is claimed. |
| Throughout | No interference in the borrower's affairs beyond the loan terms. No discrimination on grounds of sex, caste or religion. |
| Recovery | No undue harassment, such as persistently bothering borrowers at odd hours or using muscle power. |
The Recovery Clause, and Where It Led
The 2003 code dealt with recovery in a single sentence: lenders should not resort to undue harassment, 'viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans'. RBI built everything else on that sentence: the 2008 guidelines on recovery agents, the 2022 ban on calls before 8 a.m. or after 7 p.m., and the detailed recovery rules that apply from 1 January 2027.
The code also governs the end of the loan. In 2023, RBI noted that the FPC already required lenders to release property documents on repayment, and set a hard deadline: 30 days after full repayment or settlement, or ₹5,000 for each day of delay caused by the lender.
Two Numbers in the Code
- 21 days
- If another lender wants to take over a loan account, or the borrower asks for a transfer, the existing lender must give its consent or objection within 21 days of the request.
- Next higher level
- The board must set up a grievance mechanism in which disputes over decisions by the lender's staff are heard and disposed of at least at the next higher level.
Quick practice on banking basics. No signup.
Banks and NBFCs Have Separate Codes
Banks follow the FPC described here. NBFCs follow their own Fair Practices Code, which RBI issues separately and which the DRA syllabus covers in Module D. The ideas overlap, but the exam can ask about either.
How the DRA Exam Tests This
Questions usually ask what the FPC requires at a stage of the loan, or which practice it bans. The classic trap is the rejection rule: the 2003 code required written reasons only for small loans up to ₹2 lakh, but RBI later extended it to all loans, including credit cards. Options that limit it to small loans are out of date.
Another trap: interest rate changes. The code requires notice and allows changes only prospectively, so an option allowing a backdated increase is wrong.
FAQs
What is the Fair Practices Code for lenders?expand_more
A set of RBI guidelines, first issued in 2003, that every bank must turn into its own board-approved code. It covers loan applications, sanction terms, disbursement, changes in terms, release of securities and fair recovery without harassment.
Does the Fair Practices Code apply to loan recovery?expand_more
Yes. It bars lenders from undue harassment in recovery, such as persistently calling at odd hours or using muscle power. RBI's later rules on recovery agents build on this clause.
Must a bank tell me why my loan was rejected?expand_more
Yes. RBI's FPC guidelines require lenders to give the main reasons for rejecting any loan application, including credit card applications, in writing.
Where can I find my bank's Fair Practices Code?expand_more
On the bank's website. RBI requires lenders to publish their code and give it wide publicity.
Next steps
- NBFC Fair Practices Codearrow_forward
- RBI Recovery Rulesarrow_forward
- Principles of Lendingarrow_forward
- Syllabusarrow_forward
100 questions, 2 hours, scored instantly.