RBI Policy: KFS in retail, MSME loans to improve transparency for borrowers, say experts

KFS is to be provided by banks/NBFCs before the borrower executes the loan agreement. This allows you to review the key terms before getting into a contract with the lender.

The Reserve Bank of India’s (RBI) move to include key fact statements (KFS) for retail and medium, small and micro enterprises (MSMEs) will enhance transparency for borrowers, experts have said.

"The decision to have a key fact statement regarding retail and MSME advances will empower customers to make informed decisions," said Dinesh Khara, Chairman, State Bank of India (SBI)

Harsh Dugar, Executive Director, Federal Bank, said: “The introduction of Key Fact Statement (KFS) for MSME borrowers would go a long way in ensuring transparency, simplicity and uniformity,”

KFS is a easy-to-understand summary, covering all key terms of the loan, the fees and charges related to the borrowing.

“The accessibility of key fact statements will enable borrowers to fully understand the terms and conditions of their loans and make effective comparisons between different loan products,” HP Singh, CMD, Satin Creditcare Network, said.

The KFS inclusion in new segments will encourage and enable the borrowers to take informed decisions, Muthoot Finance MD George Alexander Muthoot has said.

Also read: Financial parameters of NBFCs improving, says governor at RBI MPC review

What is KFS?

KFS ensures transparency and helps informed decision-making and hence has been mandated by regulatory bodies. It cuts through legal terminology and summaries for borrowers all key facts.

KFS highlights the interest rate charged on the loan amount, impacting the total repayment amount. It also outlines various fees associated such as processing fees, application charges, or prepayment penalties. It also has details of repayment schedule, including the frequency of payments and clauses regarding pre-pay, if any.

Lenders have to provide all borrowers with a clear, concise KFS at every stage of the loan processing as well as in the case of any change in terms and conditions.

KFS is to be provided by banks or NBFCs before the borrower executes the loan agreement. This allows you to review the key terms before getting into a contract with the lender.

RBI’s move

The RBI has extended the requirements of key fact statements to all retail and MSME loans, Governor Shaktikanta Das said while sharing the policy outcome.

“RBI mandated certain categories of lenders to provide borrowers with key fact statements which provide details of all transactions fees, interest. Requirement of key fact statements extended to cover all retail and MSME loans” said Das.

Das said that the measure will lead to enhance transparency. “Circular will be released separately as banks will need time to make preparations,” Das said.

Also read: RBI introduces framework for digital transaction authentication

Repo rate unchanged

The RBI’s kept the policy repo rate unchanged at 6.5 percent in its last meeting of FY24 as retail inflation continues to be above its target of 4 percent.

The MPC also decided by a 5-1 majority to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth.