RBI mandates lenders to furnish Key Fact Statement: What is KFS and how will it bring transparency? Experts explain
RBI KFS: The Reserve Bank of India orders all regulated entities to provide a key fact statement to borrowers for all retail and MSME loans to enhance transparency and financial literacy.
To ensure greater transparency and promote financial literacy, the Reserve Bank of India (RBI) has mandated that all regulated entities provide a Key Fact Statement (KFS) to retail and micro, small and medium enterprise (MSME) borrowers. The KFS should contain essential information such as the all-inclusive Annual Percentage Rate (APR) and recovery and grievance redress mechanisms.
In its statement on Developmental and Regulatory Policies, the RBI emphasised that currently, the KFS is specifically mandated for loans by scheduled commercial banks to individual borrowers, digital lending by regulated entities, and microfinance loans.
"The Reserve Bank has announced several measures in the recent past to foster greater transparency and disclosure by the regulated entities (REs) in pricing of loans and other charges levied on the customers. One such measure is the requirement for lenders to provide their borrowers 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," the RBI statement said.
What is a Key Fact Statement?
A Key Fact Statement or KFS is a document that thoroughly lists lending terms. It has key information regarding a loan agreement, including the all-in-cost of the loan, in a simple and easy-to-comprehend format.
Manish Shah, MD and CEO of Godrej Capital, praised the move for enhancing awareness and empowering borrowers, lauding the RBI for promoting informed choices and trust in the lending process. "This initiative not only fosters transparency for MSME borrowers but also equips them to make well-informed decisions. By making this practice mandatory, we commend the RBI's efforts to assist borrowers in making informed choices and to bolster the credibility and trustworthiness of the lending process overall.”
General Counsel and Executive Director of BharatPe Sumeet Singh said that it aligns with industry ethos and will protect customers with clear disclosures. He also emphasised its role in informed decision-making and upholding regulatory standards. "Customers usually don't read the entire terms and conditions but with the RBI’s mandate, KFS will serve as a beacon, highlighting the true costs, terms, conditions, and foreclosure charges, ensuring borrowers are well-informed. This not only upholds regulatory standards, but also underscores our fundamental responsibility to prioritise consumer protection in every financial interaction.”
George Alexander Muthoot, MD of Muthoot Finance echoed Singh's opinion and said that the KFS mandate aligns with the non-banking financial company's commitment to compliance and customer protection.
Rajeev Das, CEO of I-Loan (LoanTap Group), said, “The KFS was already mandated for all commercial loans to individuals. This decision will also empower retail and MSME borrowers with more information to make correct decisions regarding their loans. In the case of small businesses and MSMEs, there are costs involved other than processing fees which are shown separately. The KFS will ensure they get a consolidated view of the actual interest rate that they will be paying after adding all the costs involved.”
Ashish Pipaliya, CBO of Bharat Financial Inclusion Limited said that it is a quick reference tool for borrowers without financial impact.
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First Published:9 Feb 2024, 03:30 PM IST
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