No Hidden Fees In Retail, MSME Loans

No Hidden Fees In Retail, MSME Loans;
RBI Mandates KFS From 1st Oct’24

In a move to empower borrowers and promote informed financial decision-making, the Reserve Bank of India (RBI) has issued comprehensive guidelines regarding Key Facts Statements (KFS) for retail and MSME term loans.

These guidelines, applicable from October 1, 2024, aim to harmonise instructions across all regulated entities, including banks, cooperative banks, and non-banking financial companies.

The KFS is a standardised statement that lenders must provide to prospective borrowers, outlining the key facts of a loan agreement in simple, easy-to-understand language.

Industry bodies like Federation of Indian Micro and Small & Medium Enterprises (FISME) have consistently raised voice against hidden charges and foreclosure charges imposed by Banks.

The new  statement will include legally significant and deterministic facts, such as the loan amount, tenure, instalment details, interest rate, fees/charges, and the Annual Percentage Rate (APR).

The statements will have a unique proposal number and validity period for borrowers to consider terms. They will include an APR computation sheet encompassing all lender charges.

Any fees not mentioned cannot be charged without borrower consent. Key Facts Statements must be included as summary boxes in loan agreements.

The guidelines also address specific requirements for collaborative lending arrangements and digital loans, ensuring transparency regarding funding proportions, blended interest rates, and cooling-off periods.

IamSMEofIndia welcomes the move as there is need for increased transparency and standardisation in the lending sector. The RBI's directive is a significant step towards empowering consumers and promoting responsible lending practices across India's financial landscape.