- By Aashish Vashistha
- Thu, 18 Apr 2024 01:49 PM (IST)
- Source:JND
The Reserve Bank of India (RBI) on Monday (April 15) directed all banks and regulated entities that it can not charge additional fees on loans that are not previously mentioned in the Key Fact Statement (KFS). The central bank emphasised that beginning from October 1, 2024, banks will be bound by the loan terms outlined in the Key Fact Statement (KFS), if the borrower agrees to them. The move aims to increase transparency and enable borrowers to make well-informed financial decisions.
“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,” it said.
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“REs shall put in place the necessary systems and processes to implement the above guidelines at the earliest. In any case, all new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers, shall comply with the above guidelines in letter and spirit without any exception,” the notification further added.
What Is KFS?
KFS is a statement of key facts of a loan agreement, presented to the borrower in a specified format. The RBI in its notification also mentioned that the KFS should be written in a language which is easily understandable to the borrower.
According to the RBI, KFS will help borrowers make informed decisions before signing loan documents for retail and MSME term loans. It must also include a unique proposal number and remain valid for at least three working days for loans having a tenor of seven days or longer, and one working day for loans with a tenor of less than seven days.
Reacting to this development, OneNDF founder Nitin Khandelwal said, “The RBI’s new guideline to implement Key Fact Statements for all retail and MSME term loans aligns perfectly with our mission at OneNDF to empower our valued borrowers with timely and straightforward financial services. As per the new rules, banks and other regulated entities will not be able to levy additional fees on loans not mentioned in the Key Fact Statement (KFS), without the explicit consent of the borrower.”
The RBI also mentioned that the regulated entities must procure an acknowledgement from the borrower verifying their comprehension. It also mentioned that the KFS must include a computation sheet that details the APR and the loan's amortization schedule throughout its duration.
