RBI to banks: Can't charge extra without mention in key fact statement

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: RBI

The Reserve Bank of India (RBI) on Monday issued a directive that prohibits banks and other regulated entities from levying additional fees on loans that are not previously disclosed in the Key Fact Statement (KFS). The notification stipulates strict adherence to these guidelines for all new retail and MSME term loans sanctioned from October 1 onwards, including loans issued to existing customers.

“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.

What is a Key Fact Statement?

The KFS serves as a clear and comprehensible statement detailing the essential facts of a loan agreement. It is provided in a standardised format to aid borrowers in understanding their financial obligations. Notably, the KFS includes the Annual Percentage Rate (APR), which reflects the total annual cost of credit, encompassing both interest rates and all other associated charges.

Details of RBI notification

As part of the February Monetary Policy, the RBI mandated that the KFS must be available to borrowers and include comprehensive information such as the APR, details concerning recovery processes, and grievance redress mechanisms. The statement must also be accessible in a language that borrowers can easily understand, contain a unique proposal number, and remain valid for a minimum duration depending on the loan's term.

Additionally, the KFS must include a detailed computation of the APR and a full amortisation schedule. Charges that the bank recovers from borrowers on behalf of third-party service providers must also be explicitly disclosed.

Exceptions

While most loans are subject to these new rules, credit card receivables remain exempt.