Transparency in lending: RBI Mandates KFS for Retail and MSME Loans

– Chirag Agarwal, finserv@vinodkothari.com

The RBI has vide its Statement on Developmental and Regulatory Policies dated February 08, 2024, announced its decision to mandate Regulated Entities (REs) to provide Key Fact Statement (KFS) for retail and Micro, Small & Medium Enterprise (MSME) loans. 

What is KFS? What are its contents?

• A crisp, clear and key information about loan terms. KFS typically includes details such as the all-in-cost of the loan, interest rates, fees, repayment terms, and any associated risks. 
• Because KFS is standardised, it enables borrowers to make comparison with terms offered by other lenders. 
• Plus, it is at-a-glance view, enabling the borrower to avoid the legalese.

KFS is currently required in?

• Loans by scheduled commercial banks to individual borrowers
• Digital lending by any regulated entity
• Microfinance loans
• In case of home loans, MITC or most important terms and conditions applies. This is akin to KFS

How will KFS help transparency?

• It is simple and concise
• It is comparable
• It has all necessary details of the loan – annual percentage rate, fees, recovery mechanism, and associated risks in a straightforward format

What is retail lending?

Retail Lending includes : 

• Consumption loans for purchase of durables, 
• Auto loans
• Credit cards 
• Educational loans 
• Home Loans
• Loan against shares
• Loan against property 
• Loan against fixed deposit, etc. 

What is lending to MSMEs?

Loans to entities qualifying as below, holding Udyam registration as MSMEs:

We will still need to wait for the regulatory fineprint

We are reading, as of now, the Policy document, and we have not seen the actual circular. Therefore, we await the regulatory fineprint.

Access our other resources here:

1. FAQs on Digital Lending Regulations
2. FAQs on Penal Charges in Loan Accounts
3. RBI streamlines floating rate reset for EMI-based personal loans