What is the vernacular language requirement under the new RBI KFS Rules?

The RBI Notification on Key Fact Statements (KFS) for Loans and Advances (“new KFS Rules”) mandates that the KFS be in a “language understood by such borrowers”.

For more clarity - here is a screenshot from the actual rules:

“A language understood by such borrowers”

What exactly does it mean?

Some context will help us understand.

Vernacularization in lending is not a new RBI push

The 2015 RBI Fair Practices Code for NBFCs mandated that “All communications to the borrower shall be in the vernacular language or a language as understood by the borrower”

This was reiterated in the 2016 Systemically Important NBFC Master Directions. 

Various banking regulations have also emphasized the need for the branch to be “language-friendly” for the borrower. 

However, many lenders only superficially complied, often relying on simple declarations in English instead of providing comprehensive vernacular documentation. 

This method, while common, was not in compliance with the actual vernacular requirements.

And it seems that RBI has now taken notice. 

RBI’s recent fine on an NBFC for non compliance with vernacular language requirement

On 24 May 2024, RBI issued a press release announcing that it had levied a fine on a systemically important NBFC for non-compliance with various provisions of the 2016 Systemically Important NBFC Master Directions

The specific violation cited by the RBI in its press release was lack of terms and conditions in a vernacular language.

 Here’s a screenshot from the press release:

RBI is clearly now intent on enforcing vernacular requirements. 

The specific “language understood by such borrowers” in the new KFS Rules is the latest - and most definitive expression of this intent by the RBI.

It wants lending to be in the vernacular language - and it is intent on enforcing this requirement.

What does the vernacular language requirement under the new KFS Rules actually mean?

There are 2 broad requirements.

KFS document in a vernacular language

The first is quite simple and straightforward. The KFS document needs to be made available in a non-English local language where applicable.

Remember, the new KFS Rules apply to retail and MSME term loans - where a significant portion of borrowers may not be fluent in English. 

In verticals like micro-lending or agri-loans - an overwhelming majority of KFS documents would need to be in a non-English local language.

Digital KFS interface in a vernacular language

If you intend to run your KFS flows digitally then there’s an additional factor that you need to consider.

The document is not the only part  of the KFS process in digital flows. 

In digital flows - there is an entire interface that the borrower needs to navigate. An interface that consists of:

• Buttons to proceed ahead
• Digital consent that needs to be taken if KFS is being eSigned
• Messages and communications guiding the borrowers through the interface

For digital KFS flows, the entire interface—including buttons, consent forms, and communication—must also be in the borrower’s chosen language. This is akin to how ATMs operate in multiple Indian languages. 

This step also ensures full compliance and aligns with upcoming vernacular requirements for digital consent under the Digital Personal Data Protection (DPDP) Act.

How do I build a digital KFS flow that is compliant with this vernacular language requirement?

For the KFS Document:

Option 1:

Maintain a multi-language KFS kit with versions in English and 2-3 major Indian languages relevant to your geography.

This option won’t ensure 100% compliance - but might ensure overwhelming compliance on a practical level depending on the geography in which you disburse.

Option 2:

Prepare separate KFS documents in each vernacular language likely to be encountered.  Allow borrowers to select their preferred language, and ensure the correct document is generated and displayed.

This is similar to ATM flows - where customers can choose a language of their choice before they proceed.

This option will be 100% compliant with both the letter and spirit of the new KFS Rules.

For the KFS Interface:‍

Ensure that the borrower’s language preference is captured and that the entire digital interface is displayed in that language.

This includes all communications, such as WhatsApp, SMS, or email messages, involved in the KFS process.

This sounds like a bit of a tech headache - can Leegality help me comply?

You are right. There is some added friction for you - the lender - with this new requirement.

On the bright side - this friction is only temporary - while you’re transitioning to the new KFS process.

With Leegality’s Automated Workflow system, you can do a one-time configuration of different KFS documents in different languages - and code that configuration (using our API) to specific buttons in your field officer app or digital customer interface. 

Here’s a screenshot of how the flow works:

‍There are other requirements under the new KFS Rules? Where can I read more?

You are right. Apart from the vernacular language requirement there are 6 other requirements under the new KFS Rules. 

Check out our Full Guide to KFS Rules Compliance to get information on the other compliance requirements.

How do I get in touch with Leegality to implement a digital KFS process?

Visit our KFS Home Page to get in touch with us.

We’ll help you set up an RBI-compliant digital KFS flow in 2 weeks.

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