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    RBI fair practices code: the borrower rights that have a clock

    The RBI fair practices code is usually summed up as a list of courtesies: a receipt for your application, terms in a language you read, no rude phone calls. That misses where the money is. The rights that change what you pay come with a clock: a cooling-off window in which a digital loan can be handed back for a few days' interest, a late-EMI penalty that may no longer earn interest on itself, and a 30-day wait after which a complaint goes over the lender's head. Miss the clock and the right is worth little.

    In rupees: handing back a ₹2 lakh digital loan inside a three-day cooling-off window costs ₹230 of interest, or ₹4,950 if the lender keeps a processing fee it disclosed upfront. Handing it back on day 45 costs ₹17,406.

    Every rule below comes from RBI's own documents, linked where used. The Key Facts Statement and penal charges rules are described in general terms; your loan's own Key Facts Statement shows how your lender applies them.

    RBI fair practices code: what it actually requires

    The technique

    A right you can quote is a right you can use

    The code is written as instructions to lenders, not handed to borrowers, so few people read it. A complaint that says 'your fair practices code requires notice of any change in charges' reaches someone with authority; 'this feels unfair' gets a template reply.

    There is no single code. For NBFCs, RBI's Master Circular on the Fair Practices Code, dated 1 July 2015 and published at https://www.rbi.org.in/commonman/english/Scripts/Notification.aspx?Id=1572, sets the baseline. For banks, the conduct rules now sit in the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Directions, 2025, at https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13140, which list among a bank's required policies one on penal charges on loans and one on resetting floating rates on personal loans, including the option to switch between fixed and floating.

    The NBFC circular is the more readable, and its duties describe what a fair lender does anywhere.

    • Acknowledge every loan application, preferably stating the time within which it will be decided
    • Convey the sanction in writing, in a language the borrower understands, with the amount, the terms and the annualised rate of interest. A rate quoted only per month or 'flat' is not what the code asks for
    • Give notice of any change in terms, including interest rates, service charges and prepayment charges, and apply changes only prospectively. A fee that appears with no prior notice is the first thing to question
    • Release all securities once every due is repaid, subject only to a legitimate right or lien
    • No undue harassment in recovery, such as bothering borrowers at odd hours or using muscle power, and a named grievance redressal officer with contact details on display

    RBI guidelines for personal loans: KFS, APR, fees

    The technique

    Compare the cash you receive, not the rate you are quoted

    The rate is charged on the sanctioned amount; fees and bundled premiums come out of the money that reaches you. Two loans at the same rate can put different sums in your account for the same EMI, and the Annual Percentage Rate is the one number that captures both.

    RBI requires lenders to give retail borrowers a Key Facts Statement before the agreement is signed: the amount, tenure, EMI, every fee and charge, and the Annual Percentage Rate, the all-inclusive cost as a yearly rate. A charge not disclosed in the KFS should not be collected without your explicit consent. Here is a ₹2 lakh loan over 36 months at an illustrative 14 percent, with a 2 percent processing fee plus 18 percent GST, then an illustrative ₹3,000 insurance premium deducted as well.

    What is deductedCash in your accountEMIAPR
    Nothing₹2,00,000₹6,83614%
    Fee ₹4,000 plus ₹720 GST₹1,95,280₹6,83615.69%
    Fee, GST and ₹3,000 insurance₹1,92,280₹6,83616.79%
    Reducing-balance EMI. APR here is the yearly rate at which 36 EMIs of ₹6,836 repay the cash actually received. Illustrative rate, fee and premium; a lender's KFS method may differ slightly.
    • The EMI does not move, which is why fees go unnoticed. The cash does: ₹7,720 less in hand for the same 36 payments, an APR 2.79 points above the quoted rate
    • Total cost rises from ₹46,079 of interest to ₹53,799 with the fee and premium. Compare offers on that figure or on APR, never on the rate alone
    • On insurance, ask whether it is optional and whether the premium comes out of your disbursal. If it is not optional, it belongs in the cost you compare
    • Where an app's operator arranged the loan, its fees are the lender's to pay: the Digital Lending Directions say they are not to be charged to or collected from the borrower

    RBI digital lending guidelines and cooling-off

    The technique

    The cooling-off window is a free look at the real terms

    Most people read the KFS after the money arrives, when objecting feels too late. The digital lending rules make that moment an exit: for a few days you can return the principal with interest for the days held and leave without penalty. The window closes quietly.

    The Reserve Bank of India (Digital Lending) Directions, 2025, dated 8 May 2025 and published at https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12848&Mode=0, cover banks and NBFCs lending through apps and websites. The loan is disbursed into your own bank account and repaid directly into the lender's, with no pass-through or pool account of a third party. You get a KFS before signing. A platform showing several lenders' offers must show each lender's name, amount, tenor, APR, monthly repayment and penal charges so you can compare. A credit limit may not be raised without your explicit request.

    You must be given an explicit option to exit during an initial cooling-off period by paying the principal and the proportionate APR, without penalty. The lender's board sets the window, which cannot be less than one day, and the lender may keep a reasonable one-time processing fee only if the KFS disclosed it upfront. Here is the ₹2 lakh loan above, returned on day 3 of a three-day window, against closing it on day 45.

    ₹2 lakh digital loan: cooling-off exit against day 45
    Exit on day 3: principal to repay
    ₹2,00,000
    Interest for 3 days at 14%
    ₹230
    Cost of the exit if the ₹4,720 fee is retained
    ₹4,950
    Exit on day 45: the ₹4,720 fee, gone
    ₹4,720
    Interest inside EMI 1
    ₹2,333
    Interest for 15 more days on ₹1,95,498
    ₹1,125
    Foreclosure charge, 4% plus GST
    ₹9,227
    Cost of the exit on day 45
    ₹17,406

    Illustrative 14 percent rate, 2 percent fee and 4 percent foreclosure charge on a fixed-rate loan, each plus 18 percent GST where charged; rounded to the rupee. At the 15.69 percent APR the 3-day cost would be ₹258. Your KFS states the actual terms.

    • Leaving inside the window saves ₹12,455 against day 45, even if the lender keeps its fee. Read the KFS the day the money lands, not when the first EMI is debited
    • One day is the floor, not the standard. If the KFS does not state the window, ask in writing before the money arrives
    • Whether a foreclosure charge can apply after the window depends on the loan and the borrower; the RBI prepayment charges page covers which loans can carry one
    • An app should not access your files and media, contacts or call logs; one-time camera, microphone or location access is allowed for KYC, with explicit consent

    Penal interest on late payment: what changed

    The technique

    A penalty you can read beats a rate you cannot see

    Under the old practice a late EMI could trigger a penal rate added to the loan's interest, sometimes on the whole outstanding and sometimes capitalised, so it earned interest of its own. The borrower saw only a bigger balance.

    RBI's penal charges rules of August 2023, which the Digital Lending Directions refer to, separate penal charges from penal interest. A lender may levy a penal charge for a default, but should not add penal interest to the loan rate or capitalise the charge, so no further interest is computed on it. The charge is meant to be reasonable and must be disclosed in the loan agreement and the KFS.

    Here is one missed ₹9,000 EMI on a loan with ₹2,00,000 outstanding, unpaid for 60 and 180 days. Ordinary interest continues on the unpaid amount in every case, ₹207 over 60 days at an illustrative 14 percent, so the table compares only the penalty.

    Penalty basis60 days180 days
    Old: 2% a month on the overdue EMI, capitalised₹364₹1,135
    Old: 2% a year over the rate, on the whole outstanding₹658₹1,973
    New: flat ₹750 once per missed instalment₹750₹750
    New: flat ₹750 for each month of default₹1,500₹4,500
    All rates and charges illustrative; ₹750 is 8.33 percent of the EMI. Your KFS states the actual charge and how often it applies. Taxes, if any, excluded.
    • The rule does not promise a smaller penalty: a flat charge levied monthly can cost more than the old percentage. It promises a figure you can read before signing, which does not compound
    • Capitalisation cost little on one EMI, ₹55 over 180 days here. The bigger old damage was a penal rate on the whole outstanding, ₹1,973 for the same miss
    • The real cost is the credit report, where a late payment shows as days past due; if it was reported wrongly, the credit report errors page covers the dispute

    Loan recovery agent rules RBI has written down

    RBI's circular of 12 August 2022 on recovery agents, at https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12378&Mode=0, covers commercial banks, NBFCs including housing finance companies, co-operative banks and asset reconstruction companies. Lenders and their agents must not resort to intimidation or harassment of any kind, verbal or physical. That includes humiliating a borrower publicly, intruding on the privacy of family, referees and friends, inappropriate messages on mobile or social media, threatening or anonymous calls, calling persistently, calling before 8:00 a.m. or after 7:00 p.m., and making false representations. The lender remains responsible for its agent.

    For digital loans, the Digital Lending Directions add that the recovery agent's details must reach you by email or SMS before the agent contacts you.

    • Log the date, time, number and words of every call outside 8:00 a.m. to 7:00 p.m. or any threatening call, and screenshot messages sent to you or your contacts
    • Complain in writing to the lender's grievance or nodal officer, naming the agent. The lender answers for the agent, so the complaint goes to the lender
    • Default does not suspend these rules, and a harassment complaint does not wait for any argument about the amount due. Threats of violence are also a police matter

    Restructuring, complaints and the Ombudsman

    The technique

    Ask before the first miss, not after the third

    A lender has more room to rework a loan for a borrower who writes in before defaulting, because nothing has yet been reported as missed. Most people wait until the calls start, when the credit report already carries the damage.

    Loan restructuring options are the lender's to offer, not a right, and a restructured loan may be reported to the bureaus as restructured. The usual forms, a longer tenure, a payment break with interest running, or a new schedule, lower the EMI and raise the total. Here is ₹2,00,000 outstanding at an illustrative 14 percent with 30 months left, stretched to 48.

    30 months leftStretched to 48
    EMI₹7,940₹5,465
    Interest from here₹38,190₹62,334
    Reducing-balance EMI; the EMI falls 31.16 percent. Illustrative rate; a lender may reprice a restructured loan.
    • Stretching buys ₹2,474 a month now for ₹24,144 more in total. Worth it for a temporary gap, poor value for a permanent one
    • Under the Reserve Bank – Integrated Ombudsman Scheme, 2026, as RBI's FAQ at https://www.rbi.org.in/commonman/Upload/English/FAQs/PDFs/RBIOS01072026.pdf sets out, you can complain once the lender has not replied within 30 days or its reply does not satisfy you, and must file within 90 days after that
    • Filing is free, at cms.rbi.org.in or through the contact centre on 14448, and covers banks, most NBFCs and credit information companies. Awards go up to ₹30 lakh for consequential loss and ₹3 lakh for loss of time, expenses, harassment and mental anguish
    • A complaint not first made to the lender is not maintainable, so keep its acknowledgement. For money taken without consent, the unauthorised transaction page has RBI's separate clock

    How to spot an illegal lending app: a checklist

    Illegal lending apps rarely look illegal. They look fast. The tell is in the arithmetic, and it is simple enough to do before accepting.

    A ₹5,000 app loan with ₹1,500 deducted, due in 7 days
    Loan shown in the app
    ₹5,000
    Deducted as 'fees' before disbursal
    ₹1,500
    Cash received
    ₹3,500
    Cost for 7 days, as a share of cash received
    42.86%
    Same cost as a simple annual rate
    2,234.69%

    Illustrative; ₹5,000 repaid in full on day 7. A regulated lender could not hide this, because the KFS would have to show it as an APR.

    • Find the name of the bank or NBFC actually lending, in the app and the KFS. RBI publishes a list of digital lending apps reported by regulated lenders, but says it does not verify that data and a listing is not an endorsement
    • No KFS, no APR, or money arriving short by a fee you were never shown: walk away, using the cooling-off window if the money is already in
    • Repayment to a personal UPI handle, a wallet or a third party's account breaks the rule that you pay the lender's own account directly
    • Permission requests for contacts, photos, files or call logs, which the rules bar, signal how the app plans to collect
    • A tenure of a week or two with repayment far above the cash received: work out the cost as a share of what reached you, as above

    How Unyfy helps with checking a loan before you sign

    Most rules on this page protect you after you borrow. The cheaper protection comes before, and two Unyfy capabilities are aimed there. The loan eligibility check pulls your Equifax credit report as a soft enquiry, which does not affect your score, and shows the score with the accounts behind it, including any marked overdue, settled or written off, before any lender sees an application. Only the one lender you choose to apply with runs a hard enquiry. Offer comparison then covers 15+ banks and NBFCs, so you weigh regulated lenders' offers side by side instead of taking the first app that says yes.

    What you see is your score and each account behind it, with any overdue, settled or written-off line marked, and then the offers you are matched to. A late EMI from months ago shows up there, early enough to deal with before it costs you on a new loan; if a line is wrong, you raise the correction with the lender and the credit bureau.

    Unyfy is not a lender, and the lender's KFS governs any loan's terms. Install Unyfy on Android, or use the web app at app.unyfy.co.in on an iPhone.

    The RBI fair practices code and the rules around it are worth most where they carry a clock: the cooling-off window that makes returning a ₹2 lakh digital loan cost ₹230 instead of ₹17,406, the KFS that must show every fee before you sign, the penal charge that may not compound, the 8:00 a.m. to 7:00 p.m. limit on recovery calls, and the 30 days after which a complaint can go to the Ombudsman.

    Informational page, not legal or financial advice. Rates, fees, charges and loans here are illustrative. RBI's directions are amended from time to time and apply differently to banks, NBFCs and other lenders; the current text on rbi.org.in and your own KFS and loan agreement govern, not this page.

    Questions people ask

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