LENDERS LIABILITY ACT :

In India, the SARFAESI Act. was enacted in 2002. On the basis of the recommendations of the working group on Lenders’ Liability Laws constituted by the Government of India, Reserve Bank of India had finalized a set of codes of conduct called ‘the Fair Practice Code for Lenders’ and advised banks to adopt the guidelines. All the banks have formulated their own set of Fair Practice Codes as per the guidelines and implemented it from 1st November, 2003.

Some of the important features of Lenders Liability Act are:

Banks and financial institutions should give acknowledgment for receipt of all loan applications. The loan applications should scrutinize the loan applications within a reasonable period of time. Loan applications in respect of priority sector and advances up to ` 2 lakhs should be comprehensive.

Lenders should ensure that the credit proposal is properly appraised after assessing the creditworthiness of the applicants. They should not use margin and security stipulation as a substitute for the due diligence on credit worthiness and other terms and conditions. The lender should inform to the borrower the sanction of credit limit in writing along with the terms and conditions thereof and keep the borrower’s acceptance of the credit limits and terms and condition on record. Duly signed acceptance letter should form part of the collateral security. In case of consortium advances, the participating lenders should evolve procedures to complete appraisal of proposals in the time-bound manner to the extent feasible and communicate their decision on financing or otherwise within a reasonable time. Lenders should ensure timely disbursement of loans sanctioned in conformity with the terms and conditions governing such sanction. Post disbursement supervision by lenders, particularly in respect of loans up to `2 lakhs, should be constructive with a view to taking care of any ‘lender-related; genuine difficulty that the borrower may face, Lenders should release all securities on receiving payment of loan or realization of loan, subject to any legitimate right of lien for any other claim lenders may have against the borrowers. Lenders should not interfere in the affairs of the borrowers except for what is allowed as per the terms and conditions of the loan sanction documents. In the matter of recovery of loans, lenders should not resort to undue harassment

Apart from the Fair Practices Code, banks should also have proper system for grievance redressal system, Apart from the above code, banks have set up codes for Bankers’ Fair Practices Code, Fair Practices Code for Credit Card Operations, Model Code for Collection of Dues and Repossession of Security etc.