In a recent development, the Reserve Bank of India (RBI) has mandated all banks and housing finance companies to furnish 'key fact statements' (KFS) to potential borrowers. The aim is to ensure clarity and enable borrowers to make well-informed decisions regarding loans and associated interest payments.
According to the directive, every regulated entity, including banks and housing finance firms, must furnish a KFS to prospective borrowers prior to finalizing the loan agreement. These statements will adhere to a standardized format provided by the RBI and will be presented in simple language comprehensible to the borrowers. It is crucial that the contents of the KFS are explained to the borrower, and their understanding is acknowledged.
Furthermore, each KFS will be assigned a unique proposal number and will remain valid for a minimum of three working days for loans with a tenor of seven days or more. For loans with a tenor of less than seven days, the validity period will be one working day, as specified in the RBI directive.
The RBI's decision to streamline instructions regarding KFS and disclosure of the Annual Percentage Rate (APR) aims to enhance transparency and mitigate information disparities concerning financial products offered by various regulated entities. Ultimately, this empowers borrowers to make sound financial choices.
These standardized instructions will be applicable to all retail and MSME term loan products provided by regulated entities such as banks and housing finance companies.
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