What the Fair Practices Code requires of every lender's application form, sanction letter, loan agreement and recovery practice, where it now sits inside RBI's 2025 Responsible Business Conduct Directions, and what RBI has actually penalised NBFCs, housing finance companies and banks for, in plain language, linked to the source.
Tell the borrower everything that affects their interest before they sign, in a language they understand; charge only what you disclosed, change it only prospectively and with notice; recover without harassment; and have the Board check, on a cycle, that all of this is actually happening.
Since 28 Nov 2025 the Fair Practices Code is no longer a standalone circular. For NBFCs it is section A of the Responsible Business Conduct Directions, 2025 (paragraphs 8 to 28), followed by the Key Facts Statement (paragraph 29) and penal charges rules (paragraph 30). Housing finance companies get the same obligations through Chapter X of the HFC Directions, 2025, which cross-refers to those paragraphs, and banks through the Commercial Banks RBC Directions, 2025 (paragraphs 327 to 348). Each lender drafts its own Code, may enhance it, must not dilute it, and must publish it on its website. Almost every penalty under it is about a specific sentence missing from an application form, a sanction letter or a loan agreement.
The Board adopts an interest rate model, and the rate of interest, the approach for gradation of risk and the rationale for charging different rates to different categories of borrowers must be disclosed in the application form and stated explicitly in the sanction letter, and published on the website. The single most-penalised sentence in the Code: four lenders missed it this year.
Convey the sanctioned amount and terms in writing, in a language the borrower understands, with the annualised rate of interest, keep the borrower's acceptance on record, put late-payment penalties in bold, and hand over a copy of the loan agreement and every enclosure. Not furnishing the copy is itself an unfair practice.
Any change to interest, charges, prepayment or foreclosure terms needs notice to the borrower and takes effect only prospectively, and the loan agreement must carry a condition permitting it. An NBFC was penalised for revising foreclosure charges without that condition, and a bank for collecting interest above the contracted rate.
HFC instalments must clearly indicate the bifurcation between interest and principal. Penal charges are charges, not penal interest: not capitalised, disclosed upfront in the agreement and the Key Facts Statement, and never higher for individual non-business borrowers than for others.
Microfinance loans need a Board-approved FPC of their own, displayed in every office; a standard loan agreement and loan card; no prepayment charge; minimum, maximum and average rates on display; and, under the Credit Facilities Directions, a Board-approved policy on pricing. An NBFC was penalised in September 2026 for not having that policy.
The Board must provide for periodical review of compliance with the Fair Practices Code and of the grievance redress mechanism at various levels of management, with a consolidated report to the Board at regular intervals. An NBFC was penalised in FY25-26 for having no such review system at all.
10 of the actions in our tracker cite a Fair Practices Code failure, and most of them are the same failure. The gradation-of-risk disclosure missing from the application form and the sanction letter, instalments that don't show the interest and principal split, foreclosure charges revised without the loan-agreement condition, interest collected above the contracted rate, a missing pricing policy, no Board review of FPC compliance. Every one lives in a document template or a review calendar that someone owns. The actions below are drawn from RBI press releases.
Each entry states only the reason cited in the RBI press release. Where a penalty covered more than one issue, the amount shown is the total and is not attributable to any single reason.
Showing 3 of 10 Fair Practices Code actions, see all of them in the enforcement tracker.
The Fair Practices Code is the most document-shaped rule RBI enforces: the obligations are sentences that must appear in forms, letters and agreements used in every branch and by every agent. Here's an honest split of what a policy distribution-and-attestation layer like PolicyCentral.ai does and does not address.
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