RBI’s latest fiat on financing for consumer durables evokes mixed reaction

Spot it (product). Swipe it (credit card). And Do not worry about it (interest-free equated monthly instalments). This is how the middle class people have been buying consumer durables, especially electronic goods, during festival time. The recent Reserve Bank of India’s directive to banks on zero interest EMI schemes offered on credit card for consumers has evoked mixed response in Tiruchi.

The RBI, in its directive of September 17, said, “In the zero per cent EMI schemes offered on credit card outstanding, the interest element is often camouflaged and passed on to customer in the form of processing fee. Similarly, some banks were loading the expenses incurred in sourcing the loan in the applicable rate of interest charged on the product. Since the very concept of zero per cent interest is non-existent and fair practice demands that the processing charge and rate of interest charged should be kept uniform product/segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers.”

Concurring with the RBI’s view on zero per cent interest, S. Pushpavanam, secretary, Consumer Protection Council, Tamil Nadu, said: “There is nothing called zero per cent interest. It is a myth. The interest is collected in the form of handling/documentation/ service/enabling charges.”

According to him, the consumer should not misuse a credit card as a loan card. The consumers, who fell for the lure of zero per cent interest EMI, were not aware of the hidden charges.

A few consumers expressed the view that the EMI scheme with zero per cent interest came in handy, especially during festival season, as they were able to buy goods, especially electronic items that were normally beyond their means. They did not mind paying a few hundreds extra in the form of hidden charges.

The EMI, they pointed out, was calculated on the maximum retail price, without any discount.

The withdrawal of the scheme would affect the consumer, said L. Nagappan of Nagappa Electronics, a leading dealer of consumer durables in the city.

The zero per cent interest offer is described as a gimmick by retailers of consumer goods. Another leading wholesale dealer of consumer products on the Chinnakkadai Street said that they did not encourage the scheme as they sold all goods at less than MRP. The scheme is usually offered by manufacturers or dealers in tie-up with major credit card providers, who include commercial banks. Supermarket chains offer products on credit card payment with zero interest in tie-up with banks like the ICICI Bank. When contacted, a customer executive of the ICICI Bank said that the bank would now offer loans to customers with varied terms of repayment in the absence of the zero interest scheme.

The loans would be structured with repayment periods ranging from three to 36 months. The interest rates would range from 10.59 per cent to 11.39 per cent, depending on the duration of the loan.

A retailer of consumer goods said that the zero interest EMI scheme was offered to enhance profit by improving volume of sale. The retailer did not gain much from the scheme but it was beneficial to consumers, he said.

Last year’s sale was hit by power cut and this year the withdrawal of zero interest scheme would hit sale of consumer goods, he opined.