Loans to be more transparent: RBI mandates lenders to issue KFS that includes all fees and charges
RBI monetary Policy: The statement read that currently, the loans and advances availed by borrowers, apart from including the rate of interest, also include other charges such as processing fees, documentation charges, etc.
RBI monetary Policy: For improved disclosures and enhanced transparency, RBI Governor Shaktikanta Das, while announcing the monetary policy on February 8, made a key announcement concerning borrowers and lenders.
The governor said that lenders will be mandated to provide the borrower with a Key Fact Statement (KFS) containing essential information such as the all-inclusive annual percentage rate (APR) and recovery and grievance redress mechanisms.
The move is aimed at bringing in more transparency. The statement read that currently, the loans and advances availed by borrowers, apart from including the rate of interest, also include other fees and charges such as processing fees, documentation charges, etc. This KFS will include all these charges and information.
This KFS, as detailed in the RBI's Statement on Developmental and Regulatory Policies, will contain the key information pertaining to the loan agreement."..a Key Fact Statement (KFS) containing the key information regarding a loan agreement, including all-in-cost of the loan, in simple and easy-to-understand format," added the statement.
Currently, KFS is specifically mandated in respect of loans by scheduled commercial banks to individual borrowers; digital lending by regulated entities (REs); and microfinance loans.
"Now, it has been decided to mandate all REs to provide the ‘Key Fact Statement’ (KFS) to the borrowers for all retail and MSME loans. Providing critical information about the terms of the loan agreement, including all-inclusive interest costs, shall greatly benefit the borrowers in making an informed decision," the governor said while delivering his MPC outcome today.
Shaktikanta Das said the central bank has announced several measures in the recent past to foster greater transparency and disclosure by the REs in the pricing of loans and other charges levied on customers.
"One such measure is the requirement for lenders to provide their borrowers with a KFS containing the key information regarding a loan agreement in a simple and easy-to-understand format," the PTI copy added.
Impact of the new norm on safeguarding borrowers' interests
As Shaktikanta Das emphasised today, going forward, banks need to clearly state the actual rate of interest that will be levied on loans on an annual basis, financials primarily contributed to the major fall in headline indices. This is because other income for the bank will now be put under check. Furthermore, bank stocks corrected as bond yields reversed their day's losses and headed higher.
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