RBI Makes Key Fact Statement a Must for Retail and MSME Loans
Moneylife Digital Team/ IANS 08 February 2024
Reserve Bank of India (RBI) on Thursday announced that it is mandatory for regulated entities such as non-banking finance companies (NBFCs) to provide key fact statements (KFS) in a simple format to borrowers for all retail and MSME loans.
This would provide critical information about the terms of the loan agreement, including all-inclusive interest cost which will greatly benefit the borrowers in making an informed decision, the RBI said.
Reserve Bank has announced several measures in the recent past to foster greater transparency and disclosure by the regulated entities (REs) in pricing of loans and other charges levied on the customers. One such measure is the requirement for lenders to provide their borrowers with a KFS containing the key information regarding a loan agreement, including the all-in-cost of the loan, in a simple and easy-to-understand format.
Currently, KFS is specifically mandated with respect to loans by scheduled commercial banks to individual borrowers, digital lending by regulated entities (REs), and microfinance loans.
RBI's directive to lenders asking them to disclose the all-inclusive annual percentage rate, including fees and other charges, in their KFS for all retail and MSME loans is welcome because it now brings consistency to norms across asset classes, says Ajit Velonie, senior director of CRISIL Ratings. "This disclosure, which was already applicable to digital loans and microfinance loans of non-banks, will improve transparency and allow borrowers to make informed decisions when seeking a loan. The mandate will be specifically relevant for shorter-tenure loans, which have relatively higher upfront processing fees but competitive interest rates."
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