RBI says no zero percent interest scheme for buying consumer goods In the zero per cent EMI schemes offered on credit card outstanding, the interest element is often camouflaged and passed on to customer in the form of processing fee The Reserve Bank of India (RBI) on Wednesday banned the zero percent (0%) interest rate scheme for purchase of consumer goods, a move intended to protect customers. However, it may dampen sales and spirits, especially during the festive season. The central bank has also said no additional charges can be levied on payment through debit cards. “...in principle, banks should not resort to any practice that would distort the interest rate structure of a product as this vitiates the transparency in pricing mechanism which is very important for the customer to take an informed decision,” RBI said in a notification. The very concept of zero per cent interest is non-existent and fair practice demands that the processing charge and interest charged should be kept uniform product or segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers, it added. In the zero per cent equated monthly installments (EMI) schemes offered on credit card outstanding, the interest element is often camouflaged and passed on to customer in the form of processing fee. “Similarly, some banks were loading the expenses incurred in sourcing the loan (through commission paid to direct selling agency) in the applicable rate of interest charged on the product,” RBI observed. The notification further said the only factor that can justify differential rate of interest for the same product, tenor being the same, is the risk rating of the customer, which may not be applicable in case of retail products where the interest is generally kept flat and is indifferent to the customer risk profile. With regard to subvention, it said, the loan amount sanctioned for the purchase should be after taking into account the discount, rather than giving effect to the benefit by reducing the interest.source-mlf
Posted on: Wed, 25 Sep 2013 16:25:30 +0000
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