RBI Directs all REs to Provide KFS to Borrowers w.e.f 1st October 2024

Current Context: The Reserve Bank of India (RBI) has indeed issued a directive to all Regulated Entities (REs) to provide a ‘Key Fact Statement’ (KFS) to borrowers.

• This directive will be effective from 1st October 2024.
• The KFS is a statement of key facts about a loan agreement in simple and easy-to-understand language provided to the borrower in a standardized format.
• It includes critical information about the terms of the loan agreement, including the all-inclusive interest cost.
• This measure is aimed at enhancing transparency and reducing information asymmetry on financial products offered by different regulated entities, thereby empowering borrowers to make informed financial decisions.
• This directive applies to all new retail and MSME term loans sanctioned on or after October 1, 2024, including fresh loans to existing customers.
• Any fees and charges that 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 the explicit consent of the borrower.
• However, credit card receivables are exempted from these provisions.

Question:

Q.1 What is the purpose of the ‘Key Fact Statement’ (KFS) as per the directive issued by the Reserve Bank of India (RBI)?
a. To provide a detailed financial statement to the borrower
b. To enhance transparency and reduce information asymmetry on financial products
c. To increase the interest rates on loans
d. To exempt credit card receivables from provisions