The finance ministry has directed all public sector banks to put in place a code for lenders' liability with board approval.

This is to complement the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act which was passed by Parliament last year.

The issue came up for discussion at the bankers' meet with finance ministry in Delhi.

According to sources, Shekhar Agarwal, joint secretary, banking operations and administration, told bank CEOs to put in place the lenders' liability code with the board approval.

Bankers are not very keen on this as they have not been able to move ahead with the Securitisation Act as yet because of the court stay on sale of some assets.

A five-member working group set up by the Centre has drawn up the code to protect borrowers' interests on the lines of the American 'Truth in Lending Act'. Agarwal was one of the members of the group.

The code may not be uniform for the industry as individual banks have been asked to frame the code and run past their boards.

"The focus will be on time-frame of loan proposal processing and disbursals. The banks must be transparent with borrowers about the processing of loans. Any deviation from the code can attract legal action," sources said.

Pressure to give fresh loans to OTS borrowers

Pressure is mounting on the banks to disburse fresh loans to those borrowers who have taken advantage of one-time settlements have cleared old loans at a discount.

At the bankers' meeting, Reserve Bank of India officials indicated that trade and industry bodies have been demanding that those who have availed of the one-time settlement mechanism must be given fresh loans.

Even though there is no formal restriction of disbursing fresh loans to these defaulters, banks normally do not feel comfortable about giving them fresh loans.

But now they may have to do this as these defaulters are not wilful defaulters.

"There have been cases where a company runs into trouble because of external circumstances like cyclical downturns, etc. They should not be treated as an outcast. Even if they have settled some old loans at a huge discount, banks should be giving them fresh loans," said a banking source.