RBI Implements Groundbreaking Transparency Measures: Lenders Mandated to Disclose All Loan Charges in Key Fact Statement

The Reserve Bank of India (RBI) has introduced measures to enhance transparency in lending practices by instructing financial institutions to disclose all charges associated with loans, in addition to interest rates. Lending institutions, including banks and Non-Banking Finance Companies (NBFCs), are now obligated to include details of charges such as processing fees and documentation fees in the Key Fact Statement (KFS). This initiative aims to provide borrowers with comprehensive information on the actual annualized interest rate, covering various loans, including those from digital lending apps, banks, and NBFCs, for both retail and MSMEs.

The RBI’s decision aligns with its commitment to customer-centricity and transparency. The move is expected to minimize the possibility of hidden charges imposed by lenders, as borrowers will now have a clearer understanding of the all-inclusive annualized interest rate, incorporating one-time charges and additional fees. The RBI Governor emphasized the importance of transparency in loan disclosures, stating that the KFS will now be extended to cover all retail and MSME loans, promoting informed decision-making by customers.

In a statement regarding the Developmental and Regulatory Policies, the RBI highlighted its ongoing efforts to enhance transparency and disclosure in the pricing of loans and related charges. The Key Fact Statement (KFS) has been previously mandated for specific categories, and the recent decision extends this requirement to all regulated entities (REs) offering retail and MSME loans. The KFS is intended to provide borrowers with crucial information, including the all-inclusive interest cost, in a clear and understandable format, ultimately empowering them to make well-informed decisions.