Banks can't charge additional than key facts statement, says RBI

Don't want to miss the best from Business Standard?

Banks and other regulated entities cannot charge additional fees throughout the loan term which are not mentioned in the Key Fact Statement without the consent of the borrower, the Reserve Bank of India said in a notification on Monday.

The notification said that all new retail and MSME term loans sanctioned on or after October 1, including fresh loans to existing customers, must adhere to the KFS guidelines without exception.

“Any fees, charges, etc. which are not mentioned in the KFS, cannot be charged by the REs to the borrower at any stage during the term of the loan, without explicit consent of the borrower,” the regulator said.

“REs shall put in place the necessary systems and processes to implement the above guidelines at the earliest. In any case, all new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers, shall comply with the above guidelines in letter and spirit without any exception,” the notification further said.

Among others, the KFS will include Annual Percentage Rate (APR), which is the annual cost of credit to the borrower that includes the interest rate and all other charges associated with the credit facility.

The central bank had mandated during February's Monetary Policy that all regulated entities must provide a Key Fact Statement (KFS) to retail and MSME borrowers, comprising crucial information including the all-inclusive annual percentage rate (APR) and details on recovery and grievance redress mechanisms.

KFS is a statement of key facts of a loan agreement, in simple and easier-to-understand language, provided to the borrower in a standardised format.

The RBI specified in the notification that the KFS should be written in a language comprehensible to the borrowers.

Additionally, it must include a unique proposal number and remain valid for at least three working days for loans with a tenor of seven days or more, and one working day for loans with a tenor of less than seven days.

Regulated entities must procure an acknowledgment from the borrower confirming their comprehension, said the RBI. The KFS must incorporate a computation sheet detailing the APR and the loan's amortisation schedule throughout its duration. This APR must include all charges imposed by the entity, along with any charges recuperated from borrowers on behalf of third-party service providers, which must be fully disclosed.