RBI to implement new loan information disclosure rules from October
The Reserve Bank of India (RBI) is set to introduce new rules from October 1, 2024, aimed at providing comprehensive loan information to individuals and businesses. This move is part of the central bank's initiative to enhance transparency and facilitate informed financial decisions. The RBI announced these changes yesterday (April 15), emphasizing that all regulated entities must adhere to these guidelines for new retail as well as MSME term loans, approved post October 1.
KFS to be included in loan agreements
The new rules mandate the inclusion of a Key Facts Statement (KFS) in loan agreements for retail as well as micro, small, and medium enterprises (MSMEs). The KFS will detail all loan terms, including interest rates and extra costs. The RBI has designed the KFS in a standard format to simplify understanding for borrowers. These regulations will also apply to existing customers who take out new loans after October 1.
Additional charges are to be disclosed separately
The RBI has clarified that charges recovered by regulated entities on behalf of third-party service providers, like legal and insurance charges, must form part of the annual percentage rate (APR). These charges must be disclosed separately in the KFS. Borrowers are expected to get receipts and related documents for all such payments within a reasonable timeframe. The guidelines also prohibit regulated entities from imposing fees/charges not mentioned in the KFS, without explicit consent from the borrower during the loan term.
Comprehensive KFS to include various loan details
The comprehensive KFS mandated by the RBI will include data on all fees, the annual cost of credit, recovery agent policies, grievance contact details, and the possibility of the loan being sold to others. The RBI has instructed regulated entities to implement the necessary systems and processes for these guidelines at the earliest.
