Reserve Bank of India (RBI) on Monday directed all banks and housing finance companies to provide ‘Key Facts Statement’ (KFS) to prospective loan takers in simple words about the loan and the interest they are expected to pay. So that they can be helped in taking decisions. The Central Bank has taken this initiative to save the customers from the trap of technical terms of banking.
Everyone must provide KFS
The directive states that all entities such as banks and housing finance companies will have to provide KFS to all potential borrowers before executing the loan contract, as per the standard format given by the RBI. “The KFS shall be written in a language understood by such customers. Its contents shall be explained to the borrower and an acknowledgment shall be obtained that he has understood it,” RBI said.
A unique proposal number will be provided
The RBI directive states that KFS will be provided with a unique proposal number and will have a validity period of at least three working days for loans with a tenure of seven days or more. Loans with tenure less than seven days will have a validity period of one working day. RBI has decided to harmonize all instructions on KFS and disclosure of Annual Percentage Rate (APR).
Will help in increasing transparency
This is being done to increase transparency and reduce information asymmetry on financial products offered by various regulated entities, thereby empowering borrowers to make informed financial decisions. The Harmonized Directive will be applicable to all retail and MSME term loan products extended by all regulated entities, such as banks and housing finance companies.
Input: IANS
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