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.
