What is a Key Fact Statement (KFS)?

A KFS contains essential details of a loan agreement, such as interest rates and charges, presented in a clear and understandable manner.

Why is the RBI implementing new rules for loans?

The RBI aims to increase transparency and empower borrowers by ensuring that all necessary loan information is provided upfront.

When will the new rules come into effect?

The new rules will be implemented from October 1st, 2024, onwards for retail and MSME loans

How will the new rules benefit borrowers?

The new rules will empower borrowers to make informed financial decisions by providing them with clear and comprehensive loan information upfront.

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New RBI guidelines on MSME loans

Alankar Mishra

Author

Updated: 09-04-2025 at 12:30 PM

If you are also planning to take a loan in the coming days, the Reserve Bank of India (RBI) is bringing in new rules that will be implemented on October 1. But these rules will not be for all the loans, only for a few specific loans.

There will be changes in rules in banks and non-banking financial companies (NBFC) from October 1st on retail and MSME loans.

Latest RBI Guidelines On MSME Loans

From October on, the borrowers will have to share all information (KFS) about the MSME loan agreement, including interest and other costs. It has been made mandatory to provide all the information regarding loan agreements given by commercial banks to individual borrowers.

It should also provide details for grievances and the likelihood of the loan being sold to others.

The RBI stated that it has been decided to harmonise the instructions on the Key Fact Statement (KFS) for loans. It is a standardised document that comprises all essential terms and conditions of a loan like the amount of the loan, rate of interest, repayment schedule, etc. KFS is available on any bank’s website or could be requested through email.

KFS serves as a boon as it simplifies every complex bit of information into easy words and guidelines that lenders and borrowers can follow and operate within the boundaries of the law.

The Need For Changes

This is to increase transparency between all financial institutions coming under the purview of the RBI so that they can provide complete information about the loans to the customers. The borrowers will be able to make financial decisions thoughtfully.

This will be made applicable in the cases of retail and MSME business loans given. The KFS document has all the information about the main facts of the loan agreement. It is written in such a way that the common man can easily understand the language.

This will make all the information clear to the loan takers and eliminate any confusion. The central bank has said that financial institutions will take the necessary measures to implement the guidelines as soon as possible.

Objectives Of Guidelines On MSME Loans

These RBI guidelines will be for all loans passed on or after October 1, 2024. This includes new loans given to existing customers as well.

Purview: The RBI also said that all amounts, like the insurance and legal fees collected from institutions, are under the purview of the central bank.
Recovered charges: It is on an actual basis on behalf of third-party service providers that will also be a part of the annual percentage rate (APR). “Charges recovered from borrowers by the regulated entities on behalf of third-party service providers on an actual basis, such as insurance and legal charges, shall also form part of the APR and shall be disclosed separately,” the RBI said.
APR: APR helps borrowers compare the all-in cost of a loan from various lenders, making it easier for them to make a decision.
Transparency: All charges should be disclosed separately to customers. Whenever the retained earnings are involved in the recovery of such charges, receipts and related documents must be provided to the borrowers. It must be provided to the borrowers for each payment within a reasonable time.
All charges to be mentioned: Further, any charges that are not mentioned in the KFS cannot be charged at any stage during the tenure of the loan without the consent of the borrowers. However, in the case of credit cards, the provisions regarding the amount received have been exempted.

This ensures that the customers know exactly what they are getting while applying for a loan, helping them make smart choices and making it fairer for them to make decisions regarding loan taking.

Applied on: This will be applied to all types of loans for individuals and small businesses, no matter which bank they are dealing with.

Conclusion

The RBI has been trying to increase transparency on loans for borrowers since 2015. These new guidelines will make it easier for borrowers and digital lenders as well.

The new RBI guidelines coming into effect from October 1st aim to make the loan process more transparent for borrowers. By mandating the provision of a Key Fact Statement containing all key details of interest rates, fees, charges, etc upfront, borrowers will be able to make more informed decisions.

They will know exactly what they are signing up for before taking a loan. This increases accountability on lenders as well.

Overall, the guidelines are a positive step that will empower borrowers with the right information and reduce elements of surprise down the line. They aim to establish a system of greater trust and fairness in retail and MSME lending.

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