RBI asks lenders to disclose all loan fees from October 1; check details

The Reserve Bank of India (RBI) has asked lenders to provide key facts statement (KFS) on loans, including all-inclusive data on interest costs and the annual credit cost from October 1 to borrowers for retail and MSME loans.

KFS is a document that states the critical facts of a loan agreement in simple language. It is provided to the borrower in an easy-to-understand format.

"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.

The statement should provide information on the policy on recovery agents, contact details for grievances and the possibility of the loan being sold to others, it added.

"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 central bank said that all new retail and MSME term loans sanctioned on or after October 1, including new loans to existing customers, should comply with the guidelines without exception.

How will it benefit borrowers?

• Key facts statement will help borrowers choose the right loan and execute the loan contract.
• Borrowers will be able to know the annual percentage rate or APR, which includes the interest rate and other charges associated with the credit facility.
• APR will help borrowers compare loans from all lenders.

Presently, KFS specifically applies to loans by commercial banks to individuals, digital lending by RBI-regulated entities, and microfinance loans.

Any charges and fees not mentioned in the KFS cannot be charged from the borrower by regulated entities during the loan term without the borrower's consent, the regulatory body said.

However, these provisions don’t apply to credit card receivables.