26.9.13

RBI Puts Brakes on 0% Loans


The Reserve Bank of India has told banks to withdraw zero per cent interest rate schemes for purchase of consumer goods through credit cards, a move aimed at protecting consumers, but something that’s likely to dampen the festive buying. RBI has made the circular public on Wednesday, which was earlier kept ‘confidential’. The central bank has also told banks to divulge the details of benefits they get from retailers for offering interest rate discounts on loans provided to buy consumer goods. “You are advised to strictly desist from these practices henceforth,” RBI said in a circular issued on September 17 to all bank chief executives. It said banks should not resort to any practice that would distort the interest rate structure of a product as this vitiates the pricing mechanism. The central bank dubbed these as “pernicious practices of select banks deterring customer protection”. It went on to add that these practices breach fair and transparent pricing of products and violate customer rights and protection.
“Many banks have appreciated our concerns and have discontinued with the practice,” the central bank said, but added that there are some who haven’t fallen in line.
While the move is aimed at protecting unsuspecting customers, retailers fear that this is going to impact festive sales, since 20-30% of customers depend on zero interest or discounted bank loans for their purchases.
RBI said the interest element is camouflaged and passed on to customers in the form of processing fee. It has also directed banks to share the benefit they get from retailers. “If there’s a discount offered in the price of a product, the loan amount sanctioned should be calculated after taking into account the discount,” it said.

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