RBI mandates lenders to provide Key Fact Statement to retail, MSME borrowers

Mumbai: All lenders will now have to provide Key Fact Statement (KFS) about the terms of the loan agreement, including all-inclusive interest cost, to borrowers for retail as well as MSME loans, the RBI said on Thursday.

Currently KFS is specifically mandated in respect of loans by commercial banks to individual borrowers, digital lending by RBI-regulated entities (REs), and microfinance loans.

Unveiling the bi-monthly monetary policy, Reserve Bank Governor Shaktikanta Das said the central bank has announced several measures in the recent past to foster greater transparency and disclosure by the REs in pricing of loans and other charges levied on customers.

One such measure is the requirement for lenders to provide their borrowers a KFS containing the key information regarding a loan agreement in a simple and easy to understand format.

"Now, it has been decided to mandate all REs to provide the KFS to the borrowers for all retail and MSME loans," the Governor said.

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

The RBI also announced a significant move regarding hedging of gold price risk in the Over-the-Counter (OTC) market in the International Financial Services Centre (IFSC), Gift City, Gandhinagar.

With a view to providing flexibility to resident entities to hedge their exposures to gold price risk efficiently, resident entities were permitted, in December 2022, to access recognised exchanges in the IFSC.

"It has now been decided to also allow them to hedge the price of gold in the OTC segment in the IFSC. This will provide resident entities more flexibility and easier access to derivative products in hedging their exposure to gold prices," Das said.

The central bank would be issuing related instructions separately.

Meanwhile, the RBI also announced a review of the regulatory framework for electronic trading platforms (ETPs).

Over the last few years, Governor Das said there has been increased integration of the onshore forex market with offshore markets, notable developments in the technology landscape and an increase in product diversity.

Market makers have also made requests to access offshore ETPs offering permitted Indian Rupee (INR) products.

"In view of these developments, it has been decided to review the regulatory framework for ETPs. The revised regulatory framework will be issued separately for public feedback," Das said.

In October 2018, the RBI had put in place a regulatory framework for ETPs for executing transactions in financial instruments regulated by it.

Under the framework, which aimed to ensure fair access through transparent, safe, and efficient trading processes, robust trading infrastructures and prevent market abuse, 13 ETPs operated by five operators have since been authorised.