All lenders, including banks, NBFCs and co-operative banks, must provide a key facts statement on the terms of their loan agreement with retail and MSME borrowers from October 1, the Reserve Bank of India said.

KFS must show the all-inclusive interest cost of borrowers.

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.

At present, only banks need to provide KFS to individual borrowers along with microfinance companies and digital lending by regulated entities (REs).

The rule now has been extended to all regulated entities (REs).

In February, the RBI had announced that all REs that include banks, non-banking finance companies (NBFCs) and co-operative banks will be mandated to provide KFS to the borrowers for all retail and MSME loans.

It had said that providing critical information about the terms of the loan agreement, including all-inclusive interest cost, will greatly benefit the borrowers in making an informed decision.

The banking regulator said in a circular that it has now been decided to harmonise the instructions on KFS for loans and advances.

“This is being done in order to enhance transparency and reduce information asymmetry on financial products being offered by different regulated entities, thereby
empowering borrowers to make an informed financial decision,” the central bank added.

The lenders will provide KFS to enable borrowers take an informed view before executing the loan contract, as per a standardised format.