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RBI Compliance Guide

Key Facts Statement (KFS) - Mandatory Since October 1, 2024

On April 15, 2024, the RBI issued Circular RBI/2024-25/18DOR.STR.REC.13 mandating that all regulated entities provide a Key Facts Statement for all new retail and MSME term loans sanctioned on or after October 1, 2024.

What is KFS?

A Key Facts Statement is a standardized, simplified disclosure document that clearly explains:

  • Loan terms and conditions in simple language
  • The true cost of borrowing (Annual Percentage Rate)
  • All fees, charges, and applicable levies
  • Repayment schedule and obligations
  • Rights and protections available to borrowers

Why was KFS Made Mandatory?

To enhance transparency, reduce information asymmetry, and empower borrowers to make informed financial decisions. The KFS ensures that all borrowers understand the true cost of credit before signing any loan agreement.

KFS Validity & Binding Nature

  • KFS must be provided with a unique proposal number
  • Valid for at least 3 working days (for loans with tenure ≥ 7 days)
  • Lender remains bound by terms in KFS if agreed during validity period
  • No fees/charges not mentioned in KFS can be levied later

Annual Percentage Rate (APR) - The True Cost

APR is the most important metric in the KFS. It represents the annual cost of credit including:

1.

Interest Rate

The charge for lending the money (e.g., 8.5% p.a.)

2.

Processing Fees

Typically 0.5% - 2% of loan amount

3.

Insurance Charges

Loan protection insurance (credit life, etc.)

4.

All Other Levies

Documentation fees, third-party charges, GST on fees, etc.

Always compare APR across lenders, not just interest rates. A lower interest rate with high processing fees may have a higher APR than a higher interest rate with lower fees.

Fixed vs Floating Rate Loans

Fixed Rate Loans

  • ✓Interest rate fixed for entire tenure
  • ✓EMI remains constant throughout
  • ✓Protects from rate hikes
  • ✗Usually higher rate than floating
  • ✗Prepayment penalties may apply

Floating Rate Loans

  • ✓Lower initial interest rate
  • ✓No prepayment penalties
  • ✓Benefit if rates decline
  • ✗EMI increases if rates rise
  • ✗Budget uncertainty

New RBI Rule (June 2025): If your floating rate loan EMI increases, you have the option to switch to fixed rate or transfer your loan to another lender at the new rate. Charges for such switches must be disclosed.

Your Rights as a Borrower

Right to Full Disclosure

You have the right to know all terms, conditions, and charges before signing. The lender must explain the KFS to you and obtain written acknowledgment.

Right to Prepay

You can prepay your loan partially or fully at any time. For floating rate loans, prepayment is free. For fixed rate loans, prepayment charges must be disclosed in advance.

Right to Switch/Transfer

You can switch from fixed to floating rate or transfer your loan to another lender. Charges must be communicated upfront and are capped.

Right to Transparent Charges

Only charges mentioned in the KFS can be levied. Any new charges require explicit consent. Receipts for all payments must be provided.

Right to Grievance Redressal

If you have complaints, you can approach your lender's grievance cell, RBI Banking Ombudsman (free), or lodge formal complaints at RBI's portal.

Your Responsibilities as a Borrower

1.

Read & Understand: Carefully read the KFS, loan agreement, and all terms before signing

2.

Acknowledge: Sign to confirm you've understood the KFS and all terms

3.

Pay on Time: Pay EMI by the due date to avoid penalties and maintain good credit

4.

Report Issues Early: If you face difficulty paying, inform your lender immediately

5.

Disclose Correctly: Provide accurate information during loan application

6.

Maintain Security: For secured loans (home, vehicle), maintain the collateral properly

Grievance Redressal Process

If you have a complaint or dispute with your lender, follow these steps:

Step 1: Lodge with Lender's Grievance Cell

Contact your lender's customer service or grievance cell. Most issues are resolved within 30 days.

Step 2: RBI Banking Ombudsman (Free Service)

If not satisfied with lender's response, escalate to RBI Banking Ombudsman. File a complaint at:

Website: www.rbi.org.in

Step 3: RBI Complaint Portal

Lodge formal complaints at: complaints.rbi.org.in

Useful RBI Resources

Official RBI Circulars & Guidelines:

  • KFS Circular: RBI/2024-25/18DOR.STR.REC.13 (April 15, 2024)
  • Master Direction on Interest Rate (2016): Loan terms regulation
  • Guidelines on Digital Lending: For online loan platforms

Contact & Complaint:

  • RBI Official Website: www.rbi.org.in
  • Banking Ombudsman: www.rbi.org.in/ombudsman (Free, Independent)
  • Complaint Portal: complaints.rbi.org.in

Important Notice

This page provides general information about RBI guidelines and borrower rights. It is not legal advice. For specific legal or financial questions, consult a financial advisor or lawyer.

The information is accurate as of January 2026. RBI may issue updated guidelines. Please visit www.rbi.org.in for the latest regulations.

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