RBI: Key Facts Statement (KFS) standards for loans and advances given by regulated firms have been introduced by the Reserve Bank of India (RBI) in an attempt to improve transparency and enable borrowers to make educated financial decisions. All commercial banks, major co-ops, non-banking financial firms (NBFCs), and other regulated businesses who provide term loan products to small and medium-sized businesses (SMEs) are subject to these requirements.
New Regulations Effective from October 1
After October 1st, only specific types of loans will be subject to the new regulations; otherwise, you will be eligible for a loan under the new terms. The guidelines for retail and MSME loans to banks and NBFCs are set to change as of October 1, according to the Reserve Bank of India (RBI).
All new retail and MSME term loans approved on or after October 1, 2024, must comply with the requirements. This also applies to new loans made to current clients. According to the RBI, the Annual Percentage Rate (APR) would also include payments like as insurance and legal fees that are paid by institutions that take loans from institutions within the central bank’s jurisdiction on a real basis on behalf of outside service providers.
Key Facts Statement (KFS) Overview
Purpose and Scope
The KFS is a summary of important information from a loan agreement that is given to borrowers in a uniform manner with the intention of helping them make wise financial decisions. It presents deterministic and legally significant data in an easy-to-understand manner.
Contents of KFS
Important details including the loan terms, Equated Periodic Instalment (EPI), Annual Percentage Rate (APR), computation sheet for APR, and amortization schedule are all included in the KFS.
Validity Period
For loans having a tenor of seven days or longer, the KFS has a validity period of at least three working days; for loans with a tenor of less than seven days, it has a validity period of one working day. During this time, borrowers must consent to the loan’s terms.
APR Calculation and Disclosure
To ensure that the borrower is aware of the true cost of credit, the APR computation takes into account all fees assessed by the regulated business. Fees that are recouped from borrowers by outside service providers are also included in the APR and made public separately.
Prohibition of Unauthorized Charges
The regulated entities are not permitted to impose any fees, levies, or other costs not specified in the KFS without the borrower’s express approval.
Exemptions
Receivables from credit cards are not subject to the KFS regulations.
Applicability and Commencement
All new retail and MSME term loans approved on or after October 1, 2024, are subject to the standards. The guidelines must be followed without exception by regulated entities.
Legal Provisions
The National Housing Bank Act of 1987, the Reserve Bank of India Act of 1934, and the Banking Regulation Act of 1949 all contain pertinent portions that are used to issue the guidelines.
