RBI enhances its criteria for Key Fact Statements to all retail and MSME borrowers

KFS is a concise, easily comprehensible summary of the important details of a loan agreement that is given to the borrower in a standard manner.

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In an effort to increase transparency in loan transactions, the Reserve Bank of India (RBI) expanded on April 15 the applicability of the Key Fact Statement, or KFS, to borrowers of all retail and micro, small, and medium enterprise (MSME) term loans.

KFS is a concise, easily comprehensible summary of the important details of a loan agreement that is given to the borrower in a standard manner.

According to RBI directives, banks are not permitted to impose extra costs on borrowers without the borrower’s approval that are not included in the KFS of the loan.

“Any fees, charges, etc. which are not mentioned in the KFS, cannot be charged by the REs to the borrower at any stage during the term of the loan, without explicit consent of the borrower,” RBI mentioned in a circular.

The annual percentage rate (APR) computation sheet and the loan’s amortization schedule over the course of the loan tenor should be included in the KFS.

The KFS should be written in a language that the borrowers can understand, according to the RBI.Additionally, the KFS must have a distinct proposal number and be valid for at least three working days for loans with a tenor of seven days or longer, and for less than seven days, for one working day.

According to the circular, lenders are required to disclose fees that are actually collected from borrowers by third-party service providers acting on behalf of banks. These fees, which include insurance and legal costs, should be included in the annual percentage rate (APR) and declared separately.

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