Fair Practices Code for NBFCs
The rules every NBFC must follow from loan application to recovery, and where borrowers go when they don't.
The Fair Practices Code (FPC) is the set of rules an NBFC must follow when it lends: what it tells the borrower, how it sets and changes terms, and how it behaves when collecting dues. RBI first issued FPC guidelines for NBFCs in 2006 and revised them in 2012. Today RBI keeps its conduct rules for NBFCs, including the Key Fact Statement, penal charges and grievance redressal, in its Responsible Business Conduct Directions, 2025.
Each NBFC writes its own code, approved by its board and published on its website, but it cannot be weaker than RBI's guidelines. For a recovery agent, the FPC is not background reading: the recovery section of the code applies to you directly.
You save ₹200 today
- Full 100-question mocks
- Recovery law coverage
- Module-wise practice
One payment, no subscription · Valid for 2 months
What the NBFC Fair Practices Code Covers
The core points, as set out in RBI's 2012 guidelines.
| Stage | What the NBFC must do |
|---|---|
| Loan application | Communicate in the vernacular or a language the borrower understands; acknowledge every application |
| Sanction | Give the sanctioned amount and terms in writing, including the annualised interest rate; state the penalty for late payment in bold in the agreement; give the borrower a copy of the loan agreement and its enclosures |
| Changes to terms | Give notice of any change in interest rate, charges or schedule; apply rate and charge changes only for the future, not backwards |
| During the loan | Not interfere in the borrower's affairs beyond what the agreement allows |
| Repayment | Release all securities once all dues are paid, subject to any legitimate lien the borrower is told about |
| Recovery | No undue harassment: no bothering borrowers at odd hours, no muscle power; train staff to deal with customers properly |
| Complaints | A board-set grievance mechanism where disputes are heard and decided at least one level above the official who took the decision |
Interest Rates and the Key Fact Statement
RBI does not cap NBFC interest rates. Instead, each NBFC's board must adopt an interest rate model, and the rate and the reasons different borrowers pay different rates must be disclosed in the application form, the sanction letter and on the website. Rates must be stated as annualised rates.
Borrowers also get a Key Fact Statement (KFS): a short standard sheet with the loan's main terms, including the annual percentage rate (APR) and charges. RBI's NBFC Directions now govern both the KFS and penal charges.
Vehicle Repossession Is Part of the Code
RBI's 2012 FPC guidelines include its 2009 clarification on repossessing vehicles: there must be a legally enforceable repossession clause in the agreement, covering the notice period, when notice can be waived, how possession is taken, a final chance to repay before sale, how the vehicle is returned, and how it is sold or auctioned.
Quick practice on banking basics. No signup.
When a Borrower's Complaint Is Not Resolved
The borrower first complains to the NBFC's grievance redressal officer, whose details must be displayed at its branches. If the NBFC is covered by the Reserve Bank Integrated Ombudsman Scheme, 2026 and the complaint is not resolved within 30 days, the borrower can go to the RBI Ombudsman through RBI's online complaint portal.
The scheme covers NBFCs that take deposits, or that deal with customers and have assets of ₹100 crore or more. Housing finance companies and a few specialist types, such as core investment companies, are left out.
How the DRA Exam Tests This
Expect questions on which items the code covers: language of communication, written sanction terms, notice before changing terms, release of securities, and the ban on harassment. A typical one asks how a change in interest rate should apply. The answer is prospectively, after notice.
The trap is mixing the NBFC code with RBI price controls. Options such as "RBI fixes the maximum NBFC interest rate" are wrong. RBI requires transparency and a board-approved rate model, not a ceiling (microfinance pricing must also not be usurious).
FAQs
What is the Fair Practices Code for NBFCs?expand_more
RBI's rules for how NBFCs lend and recover: clear written terms in a language the borrower understands, notice before changes, release of securities after repayment, no harassment in recovery, and a proper grievance mechanism.
Can an NBFC increase my interest rate without telling me?expand_more
No. The NBFC must give notice of changes in interest rates and charges, and changes can apply only from then on, not to past periods.
Where can I complain against an NBFC?expand_more
First to the NBFC's grievance redressal officer. If the NBFC is covered by the RBI Integrated Ombudsman Scheme and the complaint is not resolved within 30 days, to the RBI Ombudsman through RBI's complaint portal.
Does the Fair Practices Code apply to recovery agents?expand_more
Yes. The code's ban on undue harassment covers all recovery done for the NBFC, and RBI holds an NBFC responsible for the actions of the recovery agents it engages.
Next steps
- Fair Practices Codearrow_forward
- NBFC Typesarrow_forward
- RBI Ombudsmanarrow_forward
- Code of Conductarrow_forward
100 questions, 2 hours, scored instantly.