Key Fact Statement Made Mandatory for Retail and MSME Loans

To ensure that borrowers make informed financial decisions, the Reserve Bank of India (RBI) has extended the requirement to provide a Key Facts Statement (KFS) to all retail and MSME loans.

This requirement currently applies to loans extended by scheduled commercial banks to individual borrowers, digital lending by regulated entities and microfinance loans. The decision to mandate regulated entities to provide the KFS to borrowers of retail and MSME loans as well was taken in February.

Such a statement contains key facts of a loan agreement in simple and easier-to-understand language and is provided to borrowers in a standardised format. Key facts are defined as “legally significant and deterministic facts that satisfy basic information required to assist the borrower in taking an informed financial decision”. The KFS has a validity period as prescribed under the circular dated April 15, 2024, and within this period, the borrower may agree to the terms of the loan. If the borrower agrees to the terms within said period, the regulated entity would be bound by the same.

Notably, the fees, charges, etc. not mentioned in the KFS cannot be charged by the regulated entities to the borrower at any stage during the term of the loan, without explicit consent of the borrower. The statement should also be included as a summary box to be exhibited as part of the loan agreement.

It is specified that all new retail and MSME term loans sanctioned on or after October 1, 2024, have to mandatorily comply with the provisions of the circular, without any exception.

Date: April 16, 2024