RBI bans zero interest loans on EMI to credit card holders

In a move that is likely to dent retailers' festive season sales, the Reserve Bank of India has barred 'zero per cent interest' schemes offered by banks to credit card holders. Banks will now be able to recover dues through equated monthly installments only when customers are billed regular interest charges.

Describing the zero per cent interest scheme as a 'pernicious practice' which deters customer protection and accounting integrity, RBI has said that banks should not resort to any practice that would distort the interest rate structure of a product as this 'vitiates transparency in pricing mechanism' and prevents customers from taking informed decisions. Bankers said RBI has indicated that zero interest loans are a violation of its lending norms which prevent loans below a bank's base rate.

Retailers said the directive would deprive aspirational consumers of a facility to acquire goods they cannot otherwise afford and expect that the festival sales might get further depressed this year. Banks said that over Rs 1,000 crore of billings out of the monthly credit card billings of Rs 11,000 crore were coming from purchases billed under EMIs. According to banks, retailers may not agree to disclose the discounted price out of fear that this might lower the brand's worth among those paying upfront.

Besides zero interest EMIs that are funded by dealer discounts, RBI has also banned schemes where banks on their own offer cardholders the option to break down their large purchases into EMIs for a processing fee. "In the zero percent EMI schemes offered on credit card outstanding’s, the interest element is often camouflaged and passed on to the customer in the form of processing fee," RBI said.

RBI's circular has also asked banks to terminate relationships with those merchants who charge customers more for facilitating payments by debit card.

Blackberry sold out

BlackBerry’s fate is coming into focus. The company announced on Monday that it has signed a letter of intent with a consortium led by Fairfax Financial to buy out the company for about $4.7 billion, or $9 per share.

Fairfax CEO Prem Watsa, a former BlackBerry board member, said that the buyout would make BlackBerry a private company and would “open an exciting new private chapter for BlackBerry, its customers, carriers and employees.” BlackBerry says it expects Fairfax to finish conducting its due diligence by November 4th.

Even though the deal is non-binding at this point, BlackBerry will still have to pay Fairfax a fee of $0.30 per share if the deal doesn’t happen. BlackBerry shares jumped about 3% on on the news. The company’s full press release follows below.

BlackBerry enters into letter of intent with consortium led by Fairfax Financial

WATERLOO, ONTARIO–(Marketwired – September 23, 2013) – BlackBerry Limited (NASDAQ: BBRY)(TSX: BB) today announced it has signed a letter of intent agreement (“LOI”) under which a consortium to be led by Fairfax Financial Holdings Limited (“Fairfax”) has offered to acquire the company subject to due diligence.

The letter of intent contemplates a transaction in which BlackBerry shareholders would receive U.S. $9 in cash for each share of BlackBerry share they hold, in a transaction valued at approximately U.S. $4.7 billion. The consortium would acquire for cash all of the outstanding shares of BlackBerry not held by Fairfax. Fairfax, which owns approximately 10 percent of BlackBerry’s common shares, intends to contribute the shares of BlackBerry it currently holds into the transaction.

The BlackBerry Board of Directors, acting on the recommendation of a special committee of the board of directors (the “Special Committee”), approved the terms of the LOI under which the consortium, which is seeking financing from BofA Merrill Lynch and BMO Capital Markets, would acquire BlackBerry and take the company private subject to a number of conditions, including due diligence, negotiation and execution of a definitive agreement (the “Definitive Agreement”) and customary regulatory approvals.

The Special Committee, chaired by Director Tim Dattels, was formed in August 2013 to review strategic alternatives for the company. J.P. Morgan and Perella Weinberg are acting as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP and Torys LLP are acting as legal advisors.

Diligence is expected to be complete by November 4, 2013 (“Diligence Period”). The parties’ intention is to negotiate and execute a definitive transaction agreement by such date. During such period, BlackBerry is permitted to actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals (“Alternative Transactions”).

If (A) during the Diligence Period

(i) BlackBerry enters into any letter of intent or definitive agreement providing for an Alternative Transaction,

(ii) BlackBerry ceases to negotiate with the consortium in good faith with a view to entering into the Definitive Agreement by the end of the Diligence Period, or

(iii) an Alternative Transaction is publicly proposed or publicly announced and is consummated within 6 months following the end of the Diligence Period, or

(B) during the 3 month period following the end of the Diligence Period, BlackBerry enters into any agreement providing for an Alternative Transaction with a person with whom discussions were held before or during the Diligence Period, then BlackBerry shall pay Fairfax a fee of U.S. $0.30 per BlackBerry share, provided, however, that no such fee shall be payable if the consortium shall have reduced the price offered below U.S. $9.00 per share without the approval of the board of directors of BlackBerry. In the event that a definitive agreement is signed with Fairfax the termination fee will increase to U.S. $ 0.50 per share.

Barbara Stymiest, Chair of BlackBerry’s Board of Directors, said: “The Special Committee is seeking the best available outcome for the Company’s constituents, including for shareholders. Importantly, the go-shop process provides an opportunity to determine if there are alternatives superior to the present proposal from the Fairfax consortium.”

Prem Watsa, Chairman and CEO of Fairfax, said: “We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”

In addition to the consortium and its lenders being satisfied with all aspects of the due diligence to be carried out by them during the Diligence Period and the negotiation and execution of a binding definitive agreement approved by the board of BlackBerry, completion of the transaction will be subject to other customary conditions, including receipt of required regulatory approvals. There can be no assurance that due diligence will be satisfactory, that financing will be obtained, that a definitive agreement will be entered into or that the transaction will be consummated.

BDT & Company, LLC, BofA Merrill Lynch and BMO Capital Markets are acting as financial advisors, and Shearman & Sterling LLP and McCarthy Tetrault LLP are acting as legal advisors to Fairfax in connection with the transaction.