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RBI cracks whip on 0% EMI schemes for consumer goods

The RBI has come down heavily on 0% interest rate schemes and wants them stopped

September 24, 2013 4:24 IST | India Infoline News Service
In order to create financial awareness among consumers, the Reserve Bank of India (RBI) has asked banks to stop giving 0% interest loans to buy consumer goods, according to a media report.

According to RBI, consumers have been fooled by 0% or discounted interest rate schemes. They are made to believe that bank funding comes for free. Consumer durable manufacturers offer the 0% facility mostly on high-value products such as smartphones, LED TVs and premium home appliances, the report added.

"Such schemes only serve the purpose of (luring) and exploiting vulnerable customers," the RBI said in a confidential note to banks on September 17.

"These were found to be impinging on customer protection, accounting integrity and thereby the fair market practices which banks should epitomise," it added.

RBI said the interest component in a 0% scheme is often hidden and passed on to consumers in the form of a processing fee. The concept of 0% interest is non-existent and fair practice demands that the processing charges and rate of interest charged should be kept uniform across products and segments, it said.

The central bank has also barred banks from charging discriminatory interest rates on loans for all product categories that don't attract the 0% facility, the media report further said.

It wants to stop the current practice where financing takes place on the maximum retail price of the product and not the market price, and wants banks to pass on benefits they get from retailers and brands to consumers, the report concluded.

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