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Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday announced that the central bank is looking to issue new rules aimed at customer centricity on loans. According to Das, the new rules will help small borrowers. Small borrowers have to pay processing fee, documentation fee etc, and it is important for the customers to have a clear idea of the actual annualised interest rate that they have to pay.
“The customer knows that the loan carries an interest of so much percentage. But there are other changes and fees etc. which he pays upfront. Now that also needs to be loaded into the actual interest rate so that the customer has a clear idea that what is the actual annualised interest rate that he pays,” Shaktikanta Das said.
For this the Key Fact Statement (KFS) must include such details for greater transparency for the borrowers, the RBI governor said. The need for a KFS is being extended to all retail and MSME loans, which in turn will bring transparency in lending, he said.
“To enhance transparency in disclosure of such information on various charges, fees etc, the Reserve bank of India had mandated crayon category of lenders to provide the borrower a Key Fact Statement containing essential information such as all inclusive annual percentage rate and also details of the recovery and grievance redressal mechanism. The requirement of the KFS is now being extended to cover all retail and MSME loans. This measure will lead to enhanced transparency in lending and will enable customers in making informed decisions,” he said.
Below is the full statement on what the RBI governor said:
“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. Currently KFS is specifically mandated in respect of loans by scheduled commercial banks to individual borrowers; digital lending by REs; and microfinance loans. Now, it has been decided to mandate all REs to provide the ‘Key Fact Statement’ (KFS) to the borrowers for all retail and MSME loans. Providing critical information about the terms of the loan agreement, including all-inclusive interest cost, shall greatly benefit the borrowers in making an informed decision,” he said.
“The customer knows that the loan carries an interest of so much percentage. But there are other changes and fees etc. which he pays upfront. Now that also needs to be loaded into the actual interest rate so that the customer has a clear idea that what is the actual annualised interest rate that he pays,” Shaktikanta Das said.
For this the Key Fact Statement (KFS) must include such details for greater transparency for the borrowers, the RBI governor said. The need for a KFS is being extended to all retail and MSME loans, which in turn will bring transparency in lending, he said.
“To enhance transparency in disclosure of such information on various charges, fees etc, the Reserve bank of India had mandated crayon category of lenders to provide the borrower a Key Fact Statement containing essential information such as all inclusive annual percentage rate and also details of the recovery and grievance redressal mechanism. The requirement of the KFS is now being extended to cover all retail and MSME loans. This measure will lead to enhanced transparency in lending and will enable customers in making informed decisions,” he said.
Below is the full statement on what the RBI governor said:
“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. Currently KFS is specifically mandated in respect of loans by scheduled commercial banks to individual borrowers; digital lending by REs; and microfinance loans. Now, it has been decided to mandate all REs to provide the ‘Key Fact Statement’ (KFS) to the borrowers for all retail and MSME loans. Providing critical information about the terms of the loan agreement, including all-inclusive interest cost, shall greatly benefit the borrowers in making an informed decision,” he said.
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