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Consumer loans will get more transparent with Reserve Bank of India Thursday directing lenders to disclose all associated fees upfront. This move is part of ongoing regulatory efforts to enhance transparency and disclosure in loan pricing and charges imposed on customers by regulated entities.

While the move will take a few months to be implemented, RBI governor Shaktikanta Das said that henceforth, lenders will furnish borrowers with a key fact statement. “KFS contains essential information about loan agreements, including total cost of loan, presented in a simple and easily understandable format. We have also asked them to mention the annualised interest rate, which is essential for transparency in loans,” Das said.

Borrowers find hidden surprises

Borrowers often find it tough to know the exact cost of a loan and often realise that there are some “hidden surprises”.

“At present, banks disclose all charges on a term sheet. However, an ordinary borrower does not always read the four-five pages of terms and conditions, so we have already mandated this document in microfinance and digital lending. We are now asking this for all lenders,” said RBI governor Shaktikanta Das.

The move aligns with RBI’s commitment to foster greater transparency and disclosure, ensuring consumers have necessary information to make informed decisions. With upfront disclosure of charges associated with loans, consumers can better understand actual cost of borrowing, mainly in case of some short-term low-value loans where outgo on charges is almost equal to interest rates.

  • Published On Apr 16, 2024 at 01:55 PM IST

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