key points:
What’s happening?
The RBI is mandating all regulated entities (REs), including banks and NBFCs, to provide a Key Fact Statement (KFS) to all retail and MSME borrowers. This statement will disclose crucial information about the loan agreement, including:
- All-in-cost of the loan: This includes the interest rate, processing fees, prepayment charges, and other applicable charges.
- Loan terms and conditions: This includes the repayment schedule, penalties for late payments, and grievance redressal mechanism.
Why is this happening?
The RBI aims to:
- Enhance transparency and disclosure: By providing a clear and concise KFS, borrowers can easily understand the true cost of borrowing and compare different loan offers.
- Empower borrowers to make informed decisions: With better information, borrowers can choose loans that best suit their needs and avoid hidden fees.
- Promote fair competition among lenders: Transparency in pricing encourages lenders to compete on more than just interest rates, leading to better loan products for borrowers.
When will this take effect?
The RBI hasn’t announced a specific date yet, but they expect REs to implement this requirement soon.
What does this mean for borrowers?
Borrowers can expect to receive a KFS for any new retail or MSME loan they apply for. This document will help them:
- Compare loan offers: Compare the all-in-cost and other terms of different loans to find the most affordable option.
- Negotiate with lenders: Armed with information about the true cost of borrowing, borrowers can negotiate better terms with lenders.
- Make informed decisions: Understand the risks and obligations associated with a loan before signing on the dotted line.