Provide loan agreement info to borrowers: RBI

Reserve Bank of India (RBI) has asked banks and NBFCs to provide all borrowers from retail and micro and small enterprises (MSMEs) a key fact statement (KFS) containing all the information about the loan agreement, including all-in-costs of the loan, in simple and easy-to-understand format.

In its post policy statement, the central bank said that the new measure will foster greater transparency and disclosure by the regulated entities (REs) in pricing of loans and other charges levied on the customers.

Currently, KFS is specifically mandated in respect of loans by banks to individual borrowers, digital lending by banks and NBFCs, and microfinance loans.

KP Singh, chairman of microfinance company Satin Creditcare Network, said microfinance companies, which have been following KFS to customers since 2022, have significantly enhanced transparency and contributed to broader financial inclusion efforts.

“Now, with the recent regulatory move by the RBI extending similar requirements to banks and NBFCs, the accessibility of key fact statements will enable borrowers to fully understand the terms and conditions and make effective comparisons between different loan products. While this will enable borrowers to be more prudent while taking loans, it will enable lenders to perform due diligence of customers more effectively and understand their needs better,” Singh said.

KFS provides critical information about the pricing of loans and other charges levied on the customers helping borrowers make an informed decision about their borrowings.

Ajit Velonie, senior director at Crisil, said the RBI’s move brings consistency to norms across asset classes. “The mandate will be specifically relevant for shorter-tenure loans which have relatively higher upfront processing fees but competitive interest rates,” Velonie said.