Banks must tell borrowers the entire cost of a loan including fees and other charges: RBI

In a move aimed at enhancing transparency and ensuring borrowers are well-informed about the true costs of loans, the Reserve Bank of India (RBI) has directed all lenders to issue a 'Key Fact Statement' (KFS) for all retail and Micro, Small & Medium Enterprises (MSME) loans.

The statement is mandated to disclose processing fees and additional charges associated with the loans.

"There are other processing fees in MSMEs cases, like upfront fees for term loans and processing fees for working capital. These are always disclosed separately. I think now he wants (them) in the key financial statement (too), the consolidated rates also, (so that) the borrower should get some idea that if all this is added up and converted to a rate, what would it look like," Ashwini Kumar Tewari, Managing Director, State Bank of India explained.

Some of the charges levied by banks are one time while others are recurring charges that may levied every year. Lenders may have to specify the impact of the recurring charges too.

The Key Fact Statement for retail and MSME loans is designed to provide customers with a clear understanding of the actual annualised interest rate and the overall financial commitment associated with the loan.

RBI has extended the requirement of the Key Fact Statement to cover all retail and MSME loans and advances.

This move can be seen as a significant step towards empowering customers with comprehensive information, enabling them to make informed decisions about their borrowing.