RBI MPC takeaway: The way banks offer you loans is about to see a big change

RBI on Thursday extended key fact statement requirements for all retail and MSME loans, which was mandated only for a certain class of lenders.

This means banks will have to offer loans at a rate that includes the entire cost of the loan, not just the interest rate itself but also other costs such as processing fees, documentation charges etc. 
 The statement will help consumer know how much interest they are paying and how much fees and other charges are levied on them. Governor Das stated that it is imperative for banks to inform borrowers about the complete cost of a loan, including all fees and additional charges.

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.

"From experience we know that customers don't read the entire terms and conditions while taking a loan. Which is why we have mandated a Key Fact Statement giving an annualised interest rate that includes all charges. All information is already given by banks, but to make it in customers' interest, we have asked for a Key Fact Statement for retail and MSME customers," RBI Governor Shaktikanta Das said.

What does it mean?
KFS has to have all-inclusive interest rate mentioned. So in case there are penalties, the customers should know how much it will come to. If you take a loan from a FinTech or other entity, even they are liable to provide all this information in a standard prescribed format.

The Central Bank has also proposed to introduce a principle-based framework for the authentication of digital transactions. While announcing the decisions of the Monetary Policy Committee, RBI Governor Shaktikanta Das, said, "Over the years the Reserve Bank has proactively facilitated the introduction of various mechanisms such as additional factor of authentication (AFA) for securing digital payments. While no particular mechanism was specified by the Reserve, SMS-based OTP which is a one-time password has become very popular. To facilitate alternative authentication mechanisms for enhancing the security of digital payments, it is proposed to put in place a principle-based framework for authentication of such transactions."