All lenders will have to provide key facts statement (KFS) about the loan agreement terms, including all-inclusive interest cost to borrowers for retail and MSME loans, from October 1, the Reserve Bank said Monday. Currently, KFS is specifically mandated with respect to loans by commercial banks to individual borrowers, digital lending by RBI-regulated entities (REs) and microfinance loans.
In a statement, the RBI said it has been decided to harmonise the instructions on KFS for loans and advances.
“This is being done in order to enhance transparency and reduce information asymmetry on financial products being offered by different regulated entities, thereby empowering borrowers to make an informed financial decision,” the RBI said.
The harmonised instructions will be applicable in cases of all retail and MSME term loan products extended by all regulated entities (REs).
KFS is a statement of key facts of a loan agreement in simple and easier-to-understand language provided to the borrower in a standardised format.
“REs shall put in place the necessary systems and processes to implement the … guidelines at the earliest. In any case, all new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers, shall comply with the … guidelines in letter and spirit without any exception,” the central bank said.
During the interregnum, it said the relevant provisions on ‘KFS/Factsheet’ under the extant guidelines will continue to remain applicable, including the ‘Guidelines on Digital Lending’, the Master Direction on ‘Regulatory Framework for Microfinance Loans’, and the circular on ‘Display of Information by Banks’.
The RBI said charges recovered from the borrowers by the REs on behalf of third-party service providers on an actual basis, such as insurance and legal charges, should also form part of the annual percentage rate (APR) and should be disclosed separately.
“In all cases wherever the RE is involved in recovering such charges, the receipts and related documents shall be provided to the borrower for each payment, within a reasonable time,” it added.
Further, any fees and charges, which are not mentioned in the KFS, cannot be charged by the REs to the borrower at any stage during the term of the loan without the explicit consent of the borrower.
However, credit card receivables are exempted from the provisions.
