What is a key facts statement for loans and advances? All you need to know

To enhance transparency in the loan process, the Reserve Bank of India (RBI) has asked lenders to furnish key facts statement (KFS) to borrowers for retail and MSME loans from October 1, 2024.

What is a key facts statement for loans and advances?

KFS is a document provided by lenders to the borrower, carrying all details of a loan agreement, including the rate of interest and the annual percentage rate (APR).

APR is the yearly cost of credit to the borrower, which includes all charges associated with the credit facility.

"Contents of KFS shall be explained to the borrower, and an acknowledgement shall be obtained that he/she has understood the same," the RBI said.

What details will KFS include?

• Loan proposal/account number
• Type of loan
• Sanctioned loan amount
• Disbursal schedule
• Loan term
• Instalment details
• Interest rate and type (fixed/floating/hybrid)
• Additional details in case of floating rate of interest
• Fee/charges
• APR
• Clause of loan agreement relating to engagement of recovery agents
• Clause of loan agreement which details grievance redressal mechanism
• Contact details of the nodal grievance redressal officer
• Possibility of the loan being sold to others
• Illustrative repayment schedule

"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.

All new retail and MSME term loans processed on or after October 1, including a top-up on existing loans, should comply with the guidelines, the central bank said.