Banks must provide simple key facts statement to borrowers on terms of loans: RBI
The harmonised instructions shall apply to all retail and MSME term loan products extended by all the regulated entities, such as banks and housing finance companies.
Reserve Bank of India
MUMBAI: The RBI on Monday directed all banks and housing finance companies to provide 'key fact statements' (KFS) in simple terms to the prospective borrowers on the loans and interest that they are expected to pay to ensure transparency and help them make informed decisions.
All regulated entities, such as banks and housing finance companies, will have to provide a KFS to all the prospective borrowers before executing the loan contract, as per the standardised format given by the RBI, the directive stated.
"The KFS shall be written in a language understood by such borrowers. The contents of KFS shall be explained to the borrower and an acknowledgment shall be obtained that he/she has understood the same,” the RBI said.
Further, the KFS shall be provided with a unique proposal number and shall have a validity period of at least three working days for loans having a tenor of seven days or more, and a validity period of one working day for loans having a tenor of less than seven days, the RBI directive stipulates.
The RBI has decided to harmonise all instructions on KFS and disclosure of the Annual Percentage Rate (APR).
This is being done to enhance transparency and reduce information asymmetry on financial products being offered by the different regulated entities, thereby empowering the borrowers to make informed financial decisions.
The harmonised instructions shall apply to all retail and MSME term loan products extended by all the regulated entities, such as banks and housing finance companies.