RBI MPC: Retail borrowers to get greater clarity on how much their loan costs

Retail loan borrowers can expect to get greater clarity on how much their loan actually costs. The RBI Governor talked about borrowers being provided an annualised percentage rate (total cost of loan), a measure that will include not just the rate of interest but also all other loan-related costs.

Maulik M

February 08, 2024 / 13:11 IST

The RBI kept the repo rate unchanged at 6.5%

Keeping its focus on customer centricity, the Reserve Bank of India announced that all regulated entities including banks and non-banking financial companies (NBFCs) will have to provide a Key Fact Statement (KFS) to all retail loan and MSME (micro, small and medium enterprises) loan customers.

Currently, the KFS is mandated specifically for loans by scheduled commercial banks to individual borrowers; digital lending by REs; and microfinance loans, as mentioned in the monetary policy statement. The KFS contains the loan rate of interest and all other costs associated with the loan such as the processing fees, legal charges etc.

For the latest on the RBI policy meet 2024, click here.

The RBI Governor also talked about the KFS indicating the complete cost of a loan in the form of an annualised percentage rate that captures not only the interest cost but all other loan-related costs, too.

Commenting on this, Vipul Patel, founder of Mortgageworld, a mortgage advisory firm, said, “For further clarity, in addition to mentioning the applicable rate of interest and other costs, the lending institution will also have to highlight the total effective cost to the borrower which will factor in all the costs that the borrower may incur over the life of a loan, other things remaining the same." This, he said will bring greater transparency to retail borrowers who are currently unable to gauge their actual cost of borrowing.