Shopkeepers and consumers perceive there is a blanket ban on zero per cent interest loan
A notification issued by the Reserve Bank of India (RBI) on September 25 instructing scheduled commercial banks not to offer zero per cent Equated Monthly Instalment (EMI) schemes on credit card dues has raised concern among shoppers and consumer appliance dealers here.
Though most appliance dealers offer loans only through private financial institutions such as Bajaj Finserv and not banks, yet news reports about the notification have led to a perception that there has been a blanket ban on offering zero per cent loans.
A.N. Muthu Kumar, proprietor of Tower Vision, a consumer appliance store in the city, says the news report has come as a bolt from the blue when he was expecting to achieve a turnover of over Rs. 3 crore during the forthcoming Deepavali season. “Just yesterday, I received a communication from Samsung offering loans under ‘triple zero’ scheme. It means zero per cent interest, zero per cent down payment and zero per cent processing fee. If such schemes are banned, I would lose 25 to 30 per cent of my business,” he says.
Reacting to the RBI’s view questioning the concept of zero per cent interest, Mr.Kumar says “I agree that no one can offer things for free. But it must be noted that it is the manufacturers and dealers like me who reduce our profits and compensate the financial institutions for increasing our sales through such loans. Seventy per cent of my customers pay by cash. Others are dependant on loans. When a customer enters my showroom, he will not disclose that he is in need of a loan. I get to know it only after I offer him the final price and the deal is concluded. So there is no question of cheating the customers.”
Echoing this view, M. Balasubramanian, a private sector employee, says middle class people like him are very much dependant on loans. “My son has been pestering me to buy a LCD television this Deepavali. I won’t be able to buy one if I don’t get the benefit of zero per cent interest,” he adds.
Hemandra, Department Manager of the Reliance Digital showroom here, says his retail store does not have tie-ups with any bank for offering loans. It offers loans only through Bajaj Finserv and against credit card dues by converting the amount into EMIs for a nominal processing fee. “In so far as Madurai is concerned, 70 per cent of customers pay in cash. Only 30 per cent use credit cards and among them 70 per cent choose to convert the amount into EMIs. The impact of the RBI notification can be gauged only in the coming days,” he says.
R. Chitti Babu, a real estate developer, says the conversion of credit card dues into EMIs worked well for him. He says for every big purchase he pays in EMIs by instructing his bank through its call centre. “Recently, I purchased an iphone 5 for Rs. 45,500. I paid Rs. 10,000 by cash and swiped my credit card for the rest. Later, I converted the dues into three equated monthly instalments of Rs. 11,833 each. For this, I had to pay a processing fee of Rs. 1,242 along with Rs.154 towards service tax. I thought it was a good deal. I am okay with paying a small amount for buying peace of mind and ease of payment. How does it matter to me if the bank calls this additional payment interest levied on the loan or processing fee. It’s all the same to me,” he says.
Speaking on condition of anonymity, the assistant general manager of a nationalised bank says the RBI notification has been issued only to safeguard the interest of customers by asking banks not to camouflage the interest element in the form of processing fee. The notification also states that banks should terminate relationships with merchant establishments which charge fees on debit card transactions and pass on discounts offered by manufacturers or dealers on certain products rather than trying to adjust such discounts by reducing the rate of interest.
“There is nothing in the notification to state that there is a blanket ban on offering zero per cent loans if the manufacturers and dealers quote the right price to the customers and agree to pay the interest component to the financial companies directly rather than collecting it from customers,” he points out.