RBI new rule for loan: Know how it will benefit borrowers - 5 points

rbi new rule for loan: know how it will benefit borrowers – 5 points

The Reserve Bank of India (RBI) is turning the spotlight on transparency, mandating all banks and financial institutions to roll out a comprehensive ‘key facts statement’ for borrowers. Starting October 1, 2024, this statement will illuminate the full spectrum of loan costs, including all fees and the annual cost of credit, as per TOI report.

1)- What’s in the statement?

Borrowers can expect a detailed rundown of charges, the annual percentage rate (APR), and insights into policies regarding recovery agents. Additionally, the statement will shed light on grievance redressal contacts and the potential of loans being transferred to other entities.

2)- Implementation timeline

The RBI’s directive requires regulated entities to gear up their systems and processes promptly. The guidelines will be non-negotiable for all new retail and MSME term loans sanctioned from October 1, 2024, ensuring uniform compliance across the board.

3)- Why this matters

The RBI’s initiative is set to empower customers, helping them grasp the nuances of their loan agreements. This move aims to level the playing field, enabling borrowers to make informed financial decisions. It applies universally across loans, regardless of the lender.

4)- Spotlight on APR

For the first time, the APR takes center stage, encapsulating the yearly credit cost to the borrower. This figure will include interest rates and additional charges, such as those for insurance and legal services, providing a true cost comparison tool.

5)- A Step in a transparent direction

The RBI’s commitment to loan transparency isn’t new; it’s been on the rise since 2015, with specific adjustments for microfinance and digital lending sectors in 2022. Coupled with recent monetary policy developments, the RBI’s latest move with the key facts statement is another stride towards financial clarity for all.