Unfair practice: RBI bans zero-percent interest rate scheme

Written by fe Bureau | Mumbai | Updated: Sep 26 2013, 15:04pm hrs
At a time when banks and consumer durable companies are gearing up for the festive season to lure customers with easy payment and discount schemes, the RBI has asked banks to stop several of these.

The RBI said banks must refrain from converting credit card outstandings to monthly equated installments (EMI) under the pretext of 0% interest. The bank said that in such cases, the customers are charged interest covertly through processing fees.

Since the very concept of 0% interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product/segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers, the central bank said in a notification on Wednesday.

Large electronic companies such as LG, Samsung, Videocon, through tie-ups with banks and non-banking finance companies, offer customers easy payment options through EMIs on purchases of consumer durables.

Under such schemes, the customer is indirectly charged an interest by asking for payment of a processing fee and a portion of the total price of the product purchased.

Also, the customer foregoes any discount that is otherwise offered against a full cash payment. Such schemes are pushed especially during festivals.

As on July end, the credit card outstandings of the banking sector was R23,100 crore, a growth of 4.4% year on year.

Further, the RBI has asked banks to desist from offering discounts by lowering the interest rate of the consumer durable loan if the company offers the customer discount on the price of the product.