RBI extends Key Fact Statement rules to all retail, MSME borrowers

By: Admin
April 18, 2024
Categories: News|RBI
4 Min Read

The Reserve Bank of India (RBI) on April 15 extended the applicability of Key Fact Statement or KFS to borrowers of all retail and micro, small and medium enterprise (MSME) term loans as part of enhancing transparency in loan deals.

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.

As per the RBI direction, banks cannot charge additional fees which are not mentioned in the KFS of loans from the borrower without the consent from borrower.

“Any fees, charges, etc. 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 said in a circular.

Also, the KFS need to include a computation sheet of annual percentage rate (APR), and the amortisation schedule of the loan over the loan tenor, the RBI said.

Earlier, in the February monetary policy, the central bank had first mentioned about its decision to extend the KFS applicability to the borrowers for all retail and MSME loans.

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 for making an informed financial decision, RBI said.

The harmonised instructions will be applicable in cases of all retail and MSME term loan products extended by all regulated entities (REs), the central bank added.

The RBI said the KFS should be written in language understood by the borrowers. Further, the KFS must have a unique proposal number and have a validity of at least three working days for loans having tenor of seven days or more, and a validity of one working day for loans having tenor of less than seven days.

As per the circular, the KFS should have computation sheet of annual percentage rate (APR), and the amortisation schedule of the loan over the loan tenor.

The lenders have to disclose charges recovered from the borrowers by the third-party service providers on actual basis on behalf of banks, such as insurance charges, legal charges among others should also be part of the APR and shall be disclosed separately, circular said.

The circular exempted credit card receivables from the provisions, RBI said.

Source from: https://www.moneycontrol.com/news/business/banks-cannot-charge-additional-fees-not-mentioned-in-key-facts-statement-says-rbi-12644701.html