The Reserve Bank of India issued new fair practice guidelines for the MFI and gold loan NBFCs (Non-banking finance companies) under which these companies will have to ensure that adequate due diligence is carried out On customers.

According to the new rules, prior notice has to sent out to gold loan borrowers if non-payment of loans compel NBFCs to auction jewellery kept as collateral. The NBFCs will have to announce the auction via advertisement placed on at least two newspapers and they cannot participate in such auctions.

In addition, pledged gold will have to be auctioned only via board-approved auctioneers and the loan agreement shall also disclose auction procedure details.

The guidelines further states that jewellery taken as collateral needs to be appropriately insured and the NBFCs must ensure an adequate system for storing them in safe custody.

Below are the key points of the guidelines

• Code in vernacular language to be displayed by an NBFC-MFI in its office and branch premises
• Field staff to make necessary enquiries with regard to existing debt of the borrowers
• Effective rate of interest charged, grievance redressal system should be prominently displayed
• Due diligence shall be carried out to ensure the repayment capacity of the borrowers
• All sanctioning and disbursement of loans should be done only at a central location
• More than one individual should be involved
• Loan agreement be detailed and contain all necessary conditions
• The borrower cannot be a member of more than one SHG / JLG
• Non-coercive methods of recovery
• Field staff shall be allowed to make recovery at residence only if borrower fails to appear at central designated place on 2 or more occasion.