The Reserve Bank of India (RBI) on Thursday announced to mandate all Regulated Entities (REs) to provide the ‘Key Fact Statement’ (KFS) to the borrowers for all retail and MSME loans.
The REs, including banks and NBFCs, will have to offer loans at a rate that includes the entire cost of the loan, not just the interest rate itself but other costs such as processing fees, documentation charges, etc.
The move shall greatly benefit the borrowers in making an informed decision, Governor Shaktikanta Das said while announcing the Monetary Policy Committee (MPC) announcement.
The six-member MPC also decided by a 5 is to 1 majority to keep the policy rate unchanged at 6.5 per cent, and maintain a ‘withdrawal of accommodation’ stance.
A key Fact Statement is the requirement for lenders to provide their borrowers with key information regarding a loan agreement. It contains information related to the all-in-cost of the loan, in a simple and easy-to-understand format.
Currently, KFS is specifically mandated in respect of loans by scheduled commercial banks to individual borrowers; digital lending by REs; and microfinance loans.
Now, it will be mandated for all the REs to provide the ‘Key Fact Statement’ (KFS) to the borrowers for all retail and MSME loans.
“Providing critical information about the terms of the loan agreement, including all-inclusive interest cost, shall greatly benefit the borrowers in making an informed decision,” Governor Das said in his speech.
The Key Fact Statement will include information pertaining not just to the interest rate, but also to other costs such as processing fees, and documentation charges among others.
A significant benefit this move will have is that in case of penalties, the customers should know how much it will come to.
REs will be liable to provide all this information in a standard prescribed format.