Financial Daily from THE HINDU group of publications
Wednesday, May 21, 2003
Financial Daily from THE HINDU group of publications Wednesday, May 21, 2003 |
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Money & Banking
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RBI & Other Central Banks Fair practices code ticklish for banks Rukmani Vishwanath
MUMBAI, May 20 BANKERS are of the view that evolving a fair practices code as per the Reserve Bank of India guidelines might be easier said than done. They are apprehensive about the possible repercussions of some of the tenets in the code, once it comes into force. Some are of the view that the code might lead to unnecessary litigations against banks. For instance, as per the code banks are expected to give detailed explanation to the borrower as to why a loan application has been rejected. Bankers contend that some times this becomes difficult. One senior official with a public sector bank argued, "In case I have information from the market that a certain party's integrity is not good, but he hasn't yet technically defaulted to a bank, then what reason can I give for rejecting his loan application?" "Unless I am very careful about such things, I leave the bank vulnerable to litigation," he said. While a few public sector banks have started taking the first tentative steps towards working out an internal policy as per the RBI guidelines, there is still some confusion as to how they can go about formulating the code. Some banks are even said to be taking legal counsel to guard against litigations and lawsuits in future. Meanwhile, as a prelude to formulating a policy based on the code, banks have initiated an exercise to educate their branches to become systematic, keep to time-schedules and follow uniform practices with respect to acknowledgements and rejections of applications. Bankers said the emphasis would be on `what words to use' when issuing something in writing to the borrower. "Although we will not use too much legalese, we will consult with our legal department and broadly take a view on how to conduct our correspondences," said a banker. Last month, RBI had asked all banks to put in place a `fair practices code' by August this year, giving them the freedom to draft it to suit the individual bank's style of functioning. The fair practices code was aimed at balancing the sweeping powers granted to banks with the Securitisation Act and ensure that banks discharged their duties responsibly. Towards this end, the guidelines chalked out areas where banks need to bring in more transparency and disclosures. According to banking circles, the guidelines for the fair practices code in its present form, is a watered down version of the original draft. When RBI circulated the draft guidelines among banks, it is understood that bankers expressed serious reservations in some areas, and RBI yielded to some of those demands.
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