Top 10 questions lenders ask about the RBI KFS guidelines

In April 2024, RBI issued a “master” notification titled - “Key Fact Statements for Loans and Advances” (‘ KFS Guidelines’) making KFS mandatory for all retail and MSME term loans. 

Non-compliance risks regulatory penalties, operational challenges, and disputes.

After speaking with 30+ leading lenders and working with 15+ lenders on their KFS implementation and conducting numerous KFS workshops, we’ve compiled a list of the 10 most pressing KFS-related questions lenders ask us.

Q1: If the repayment schedule changes based on the actual date of disbursement, do we need to furnish a revised KFS to the customer? 

Yes, if the repayment schedule changes at the time of disbursement, a revised KFS must be provided to the customer to reflect the updated terms and repayment schedule.

The RBI wants an accurate repayment schedule to be attached to the KFS and acknowledged by the borrower.

Q2: Clause 9 says that the KFS should be included as a summary to the loan agreement. Should the KFS included be a complete or summarized version? If summarized, what should it entail? 

The KFS included in the loan agreement should be a complete version, in standardized format as per Annex A.

In fact if you look at the RBI’s KFS format - it basically itself is a summary of the financial terms and conditions of the loan. Summarizing this further would squeeze the essence out of it.

Q3: When do we have to disclose the KFS - at the time of disbursement or during the time of loan agreement execution?

The RBI KFS Rules are clear - they state that the KFS has to be disclosed before the loan agreement is signed.

Operationally, we are seeing a mix of two approaches in the market, we’re calling them - Cautious and Liberal approach.

1. In the cautious approach, you collect a digital acknowledgement from the customer first and then share the loan agreement for eSign (this is the flow we’d recommend)
2. In the liberal approach, the KFS is attached to the loan kit as the first document. The entire loan kit is then eSigned in one go.

In either approach, the KFS is disclosed to the borrower before the loan agreement is signed. 

Disbursement period is irrelevant.

Q4: Can I use Clickwrap to collect KFS acknowledgement?

Many lenders use clickwrap (“I Agree” boxes) to collect KFS acknowledgement.
While these are technically valid - we don’t recommend using clickwrap for KFS acknowledgements as they give rise to 2 practical concerns - 

1. It is difficult to prove that the borrower was the one who clicked it
2. It is hard to enforce as you won’t have any strong audit trail to prove the borrower’s acknowledgement.

Q5: Is it mandatory to collect eSign on KFS document?

No, it’s not mandatory to use eSign (like an Aadhaar eSign) to collect KFS acknowledgement.  

You can use any electronic authentication that ensures:

• Verifiability that the borrower in fact performed the acknowledgement on the KFS
• A clear audit trail showing the entire chain of acknowledgement

While Aadhaar eSign may require too much friction for something like this - lenders across India are using solutions like Leegality’s OTP-less Quick Sign instead.

Q6: Can I hyperlink the KFS in the summary screen and collect ‘I agree’ consent stating they’ve read and agreed to the terms of the KFS?

We would not recommend this flow because:

1. Customers can claim they never saw the KFS, so they were not aware of the terms of the KFS before signing the loan agreement. In fact unless customers click the link - they won’t actually see the KFS. 
2. You can’t prove the identity of the person who clicked the ‘I Agree’ button - so you can never prove the borrower’s identity.

The KFS should be displayed prominently - and the customer should have the ability to

download it, think about it and then digitally acknowledge it later (within the minimum validity period) if they so wish.

Q7: Should numbers be translated in the vernacular KFS?

We don’t think you need to translate the numbers and you can keep using English and Roman numerics. 

This is because people of India are more comfortable with English and Roman numerals now, thanks to mobile phones, frequent OTPs and social media. 

In fact, a recent report by Google India actively recommends using English numerals instead of Indian numerals. It found that most users are familiar with English numerals. You can read the report here.

Q8: I mention a particular interest rate percentage in the KFS that I send along with the sanction letter. However, when I share the loan agreement, I sometimes revise the interest rate. Do I need to send a fresh KFS? 

There are 2 options available to you here: 

1. If your revised interest rate is lower: Mention the highest interest rate that you will charge in the initial sanction and KFS itself. If you later reduce it, that’s fine. RBI’s intent is to prevent lenders from charging more interest thanwhat is mentioned in the documentation. 

2. If your revised interest rate is higher: Send a revised KFS with the modified interest rate before the loan agreement is signed. This is because any revision can only be made with the prior explicit consent of the borrower. 

In case you want to increase the interest rate during the loan tenure - after disbursal - then you will need the prior explicit consent of the borrower. You can accomplish this by collecting explicit borrower acknowledgement on a revised KFS with the increased interest rate.

Q9: For digital KFS, should we translate the eSign interface (eSign button, instructions) in the borrower’s vernacular language?

Yes - ideally your eSign interface will also need to be in a language “understood by the borrower” for full compliance in spirit with the KFS Guidelines. 

Q10: What if the customer downsizes the loan subsequently, do we need to share the revised KFS?

Yes, for any downsizing or changes to the terms of the loan, you need to collect explicit consent from the customer. Practically this would mean a revised KFS on which explicit customer consent is recorded in an auditable, verifiable and enforceable way.

Lenders have made 5 mistakes in their KFS implementation, see what are those and how to fix -