2.4 LSP obligations and Key Fact Statement

LSP perimeter

A Lending Service Provider (LSP) is an agent of a regulated entity (RE), defined in the RBI Digital Lending Guidelines as someone “who carries out one or more of the lender’s functions or part thereof in customer acquisition, underwriting support, pricing support, servicing, monitoring, recovery of specific loan or loan portfolio on behalf of REs in conformity with extant outsourcing guidelines.”

Permitted activities

• Borrower acquisition (marketing, sales, lead generation, application UI).
• KYC / KYB data collection.
• Document collection.
• Underwriting support — data ingestion, scoring, recommendation, eligibility computation.
• Pricing support — running RE’s pricing rules.
• Loan disbursement initiation — triggering the RE’s disbursement; NOT holding borrower money.
• Servicing — reminders, statements, customer support.
• Monitoring — early warning signals, behavioural triggers.
• Recovery — soft, hard, legal, on behalf of RE under RE’s policy.

Not permitted

• Holding borrower money in own account (no pass-through, no escrow held by LSP in own name beyond explicit collection mandate).
• Making final credit decision — the sanction must be from the RE’s system / decision.
• Charging the borrower directly any loan-related fee — fees flow from RE only.
• Representing itself as the lender.
• Holding consent for purposes beyond what is needed for the specific loan.

Liability shape

LSPs are liable jointly with the RE for any breach of borrower’s interests. The RE is responsible for due diligence on the LSP, written outsourcing agreement, audit rights, and continuous monitoring.

Key Fact Statement (KFS)

In April 2024, RBI standardised the KFS format across REs in Key Fact Statement for Retail and MSME Loans (RBI/2023-24/61 DOR.STR.REC.40/13.03.00/2023-24, 15 April 2024), making it mandatory in a defined format with no permissible deviations.

Mandatory KFS contents (per the 2024 circular)

The KFS is a 2-3 page standardised document with the following mandatory sections:

Part 1 — Key information

• Loan proposal / account number.
• Type of loan (working capital line, term loan, etc.).
• Borrower’s name.
• Sanctioned loan amount (in ₹).
• Disbursement schedule (lump sum / multiple draws).
• Loan term (tenure in months / days).
• Instalment details (number, frequency, due dates).
• Interest rate type (fixed / floating / hybrid).
• Reference rate (if floating — e.g., MCLR, REPO + spread).
• Rate of interest (per annum).
• Annual Percentage Rate (APR) computed per RBI formula.
• All fees and charges itemised: processing, documentation, legal, valuation, eSign, eStamp, broker.
• Penal charges policy (penal rate, when applied, max recoverable).
• Foreclosure / prepayment charges.
• Late payment charges.
• Other charges (cheque return, NACH bounce, etc.).
• Total amount payable over loan tenure (principal + interest + all charges).

Part 2 — Other key disclosures

• Cooling-off period and exit terms.
• Recovery agent details (name and contact of LSP / agent who will engage if loan defaults).
• Details of loan transfer (whether loan may be assigned / co-lent / securitised).
• Grievance redressal officer name, designation, contact, escalation route.
• Insurance (whether bundled, separately disclosed, opt-in).
• DLA / LSP details (name, role).

Part 3 — Computation sheet (mandatory)

• Step-by-step APR computation.
• Cash flow schedule — every cash inflow and outflow over the loan life, including fee timing.

Format

• A4 single PDF, standard fonts, RE’s letterhead.
• Vernacular language must be offered — English plus the borrower’s chosen Indian language.
• Must be issued before loan execution. Borrower must explicitly acknowledge receipt and understanding.

Co-lent loans

For co-lent loans, the KFS must show both lenders’ details, the share of each, and the single point of contact for the borrower.

Product implications

• Standard KFS template in the system, multi-language.
• Acknowledgement workflow — borrower must check / e-sign acknowledgement before next screen.
• No deviation from format — even minor reordering of mandatory fields is a compliance issue.

System implications

• KFS service generates KFS as PDF + structured JSON / XML for archive.
• APR computation library — implement RBI formula; have automated unit tests against worked examples.
• Multi-language rendering — templates for English, Hindi, Marathi, Tamil, Telugu, Bengali, Gujarati, Kannada, Malayalam, Punjabi, Odia at minimum. Use a translation memory; have legal review for each language version.
• Versioning — every KFS issued is versioned and stored immutably.
• Search and retrieval for inspection.

Documents that must be generated

• KFS (per loan).
• Acknowledgement (per loan).
• Sanction letter (separately from KFS, though may share content).
• Loan agreement.
• LSP / DLA disclosures (public list on website).

Workflow that must exist

• Pre-disbursement gate that blocks disbursement without KFS acknowledgement.
• Vernacular language selection during onboarding, captured against borrower profile.
• LSP onboarding workflow — due diligence file, written outsourcing agreement, periodic review.
• LSP performance monitoring — quarterly review, audit findings, remediation.

Reports that must be produced

• Annual return of LSPs / DLAs engaged.
• KFS compliance audit (internal quarterly, external annual).
• Borrower grievance log (sampled for KFS-related complaints).

Audit evidence required

• KFS for every loan, with acknowledgement.
• LSP due-diligence files.
• LSP outsourcing agreements with audit-right clauses.

Sources

• RBI Guidelines on Digital Lending, DOR.CRE.REC.66/21.07.001/2022-23, 2 September 2022.
• RBI Key Fact Statement for Retail and MSME Loans, RBI/2023-24/61 DOR.STR.REC.40/13.03.00/2023-24, 15 April 2024.
• RBI Master Direction on Outsourcing of IT Services, 10 April 2023.