RBI asks lenders to provide ‘key fact statement’ to borrowers

The Reserve Bank of India has asked lenders to provide ‘key fact statement’ (KFS) to the borrowers of all new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers.

KFS contains key information regarding a loan agreement, includingan all-in cost of the loan, in asimple and easy to understand format.

In a circular addressed to regulated eEntities –All commercial banks, co-operative banks, and non-banking financial companies (including housing finance companies). RBI said they have to provide a KFS to all prospective borrowers to help them take an informed view before executing the loan contract, as per the standardised format.

Credit card receivables, however, are exempted from the provisions contained under the circular.

The KFS, which will be included as a summary box to be exhibited as part of the loan agreement, has to be written in a language understood by such borrowers. Contents of KFS need to be explained to the borrower and an acknowledgement has to be obtained stating that he/she has understood the same.

Validity period

The KFS has to be provided with a unique proposal number and will have a validity period of at least three working days for loans having tenor of seven days or more and a validity period of one working day for loans having tenor of less than seven days, as per the circular.

Validity period refers to the period available to the borrower, after being provided the KFS by the RE, to agree to the terms of the loan. They will be bound by the terms of the loan indicated in the KFS, if agreed to by the borrower during the validity period.

The KFS will include a computation sheet of annual percentage rate (APR) and the amortisation schedule of the loan over the loan tenor. The APR will include all charges which are levied by the RE.

 Charges

Charges recovered from the borrowers by the REs on behalf of third-party service providers on actual basis, such as insurance charges, legal charges etc., will also form part of the APR and have to be disclosed separately.

In all cases wherever the RE is involved in recovering such charges, the receipts and related documents have to be provided to the borrower for each payment, within a reasonable time.

Any fee, or charge, 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 explicit consent of the borrower.

RBI has directed REs to put in place the necessary systems and processes to implement the guidelines relating to KFS for all retail and MSME term loan products at the earliest. 

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