The Reserve Bank of India (“RBI”) has amended the Master Direction – Reserve Bank Of India (Regulatory Framework for Microfinance Loans) Directions, 2022 (“Master Direction”) by incorporating the changes introduced by the Master Circular on Key Facts Statement (KFS) for Loans & Advances which was issued by RBI recently on 15th April, 2024.

Key Highlights:

1. The present amendment has done away with the requirements prescribed under Paragraph 6.3, 6.4 and 6.5 of the Master Direction pertaining to making disclosures related to pricing related information and fees to be charged to borrowers in the factsheet provided to borrowers and providing a factsheet for collateralized loans extended to borrowers from low-income households.
2. The present amendment has incorporated a new provision (Paragraph 6A) which imposes an obligation on Regulated Entities (RE) to provide a Key Fact Statement (KFS)* to all prospective borrowers to help them take an informed view before executing the loan contract, as per a standardised format as prescribed in the amendment.
3. The present amendment also prescribes the following obligations on part of REs:
   1. REs are required to ensure that the KFS is written in a language that is understood by borrowers.
   2. REs are required to explain contents of the KFS to the borrower and obtain an acknowledgement that he/she has understood the same.
   3. REs are required to provide a unique proposal number with the KFS.
   4. REs are required to include a computation sheet of annual percentage rate (APR), and the amortisation schedule of the loan over the loan tenor in the KFS.
   5. REs are required to ensure that charges recovered from the borrowers on behalf of third-party service providers on actual basis, such as insurance charges, legal charges etc., also form part of the APR and are disclosed separately.
   6. REs are required to include the KFS as a summary box to be exhibited as part of the loan agreement.
4. The present amendment amends Annex II (Illustrative Factsheet for Microfinance Loans) to incorporate the requirement of including a computation sheet of annual percentage rate in the KFS and inserts Annex III which prescribes the Illustrative Repayment Schedule under Equated Periodic Instalment for the hypothetical loan.

Please refer to the hyperlink below for a detailed read of the updated Master Direction. 

Source: Reserve Bank Of India

*Key Facts Statement (KFS) has been defined as a statement of key facts of a loan agreement, in simple and easier to understand language, provided to the borrower in a standardised format.

Share this: