The Key Facts Statement: what must be disclosed, and where lenders get the APR wrong
CA Anil Agarwal · Regulatory · 2026-08-10 · 6 min read (estimated)
The Key Facts Statement is a prescribed format, not a suggested one, given to every retail and MSME borrower before the agreement is executed — and a charge not disclosed in it cannot be recovered from that borrower at any later stage. That last clause is what makes it a limit on the lender rather than a summary of its intentions.
The Reserve Bank's circular on the Key Facts Statement for loans and advances (RBI/2024-25/18, DOR.STR.REC.13/13.03.00/2024-25, dated 15 April 2024) requires regulated entities to give every retail and MSME borrower a standard-format statement of what the loan actually costs, before the agreement is executed. It applies to all new retail and MSME term loans sanctioned on or after 1 October 2024.
What has to be in it
The circular's Annex A is a prescribed format, not a suggested one. It covers the loan type and amount, the disbursal schedule, the interest rate and whether it is fixed or floating, the tenor, the instalment, when repayment commences, all fees and charges — separating what the lender charges from what is collected on behalf of a third party — the annual percentage rate, contingent charges including the penal charge, the switching charge where a floating loan may be converted, the clause references for recovery agents and grievance redressal, the nodal officer's name and contact, and the lender's position on transfer, securitisation and co-lending.
The APR is not the interest rate
This is where most of the errors are. The annual percentage rate is the rate at which the present value of everything the borrower actually pays equals what they actually receive. Fees deducted at disbursement therefore raise it twice over: they reduce the amount received and they are a cost paid. A ₹5,00,000 loan at a 16% nominal rate with a 2% processing fee deducted up front does not have a 16% APR, and stating that it does is a misstatement in a prescribed disclosure.
Three mistakes recur:
- Quoting the nominal rate as the APR. The most common, and the easiest for an inspector to
catch, because the two figures are simply equal on the statement.
- Excluding fees collected for third parties. The circular is explicit: charges recovered on
behalf of third-party service providers, such as insurance and legal charges, form part of the APR and are disclosed separately. They are not the lender's income, and they are still the borrower's cost.
- Computing the APR on the sanctioned amount rather than the net disbursed amount. The
arithmetic is right and the input is wrong.
Where this sits in a lending system
The KFS should be generated from the loan's own sanctioned terms — the same schedule that will be used to bill the borrower — rather than assembled separately. A KFS produced by a different code path from the one that computes the instalment is a KFS that can disagree with the loan.
One more rule is worth stating because it is easy to breach operationally rather than deliberately: any fee or charge not mentioned in the KFS cannot be recovered from the borrower at any stage during the term of the loan without their explicit consent. A charge introduced later, however reasonable, was not in the statement.
The circular carries three annexes: Annex A is the KFS format, Annex B an illustrative APR computation, and Annex C a sample repayment schedule.
The format requirements above are read from Annex A of the circular cited. A summary is not a substitute for the prescribed format — read the circular.
Why is the non-recovery clause the important one?
Because it converts a disclosure obligation into a commercial one.
Every other requirement in the circular describes what the borrower must be shown. This one describes what happens if they were not: the charge is unrecoverable. It makes the KFS a completeness problem, and it changes the question a lender should be asking of its own process from "does the KFS look right" to "is there any charge this system can levy that is not on it?"
What makes a KFS reproducible?
A dispute about a charge arrives two or three years later. Three things have to be true for it to be answerable:
The KFS was generated from the loan's own terms. Not from a template that was edited, and not from the product master as it stood.
Those terms were frozen onto the loan. Otherwise regenerating the document produces today's terms, which the borrower has never seen.
The document itself, or enough to reproduce it identically, was stored. Including which language version was signed against.
Common mistakes
- A typed APR. Contradicted by the schedule on the same page.
- Charges in the agreement but not in the KFS. Unrecoverable.
- "Other charges as applicable". Not a disclosure.
- Issued at disbursement. It is a pre-execution document.
- Regenerated from current masters. Produces a document the borrower never received.
- No record of the language used. The vernacular requirement is about what the borrower
understood, and the record is the evidence.
- No unique proposal number or validity period. Both are part of the prescribed format, and both
exist so terms cannot be substituted after the borrower has compared them.
Frequently asked questions
Which loans need a Key Facts Statement?
Retail and MSME term loans, for the sanctions the circular applies to from its effective date. Lenders commonly extend the practice further, because the disclosure discipline is useful and the non-recovery clause gives the lender certainty about what it may charge.
Can a lender recover a charge not shown in the KFS?
No. Charges not disclosed in the Key Facts Statement cannot be recovered at any later stage, which is why the practical test of the process is completeness rather than presentation.
When must the KFS be given?
Before the loan agreement is executed, so the borrower can read and compare the terms before committing. It also carries a validity period; terms that change after it lapses require a fresh statement.
Does the KFS have to be in the borrower's own language?
It must be in a language the borrower understands, and the lender should be able to evidence which version was used. That normally means maintaining the statement and its declaration in the languages the lender's borrowers actually use.
What is the APR on a KFS?
The all-in annualised cost of the credit, computed on the money the borrower actually received — interest plus every charge the lender recovers, excluding contingent charges such as penal and foreclosure charges, which are disclosed separately.
Related reading: The Key Facts Statement requirement · What goes into the KFS APR · Terms are frozen at sanction · RBI compliance for NBFCs
Ask for a demonstration — generate the statement from a live loan's terms.
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