Banks told to end zero interest EMI schemes

The central bank has also said that no additional charges can be levied on payment through debit cards.

The very concept of 0 per cent interest is non-existent...and such schemes only serve the purpose of exploiting vulnerable customers, the RBI said on Wednesday. File photo

With the festival season fast approaching and banks and merchant establishments falling head over heals to woo clients, the Reserve Bank of India dealt a severe blow to them on Wednesday.

The Central Bank has instructed banks to stop offering zero interest EMI (equated monthly instalment) schemes for the purchase of consumer goods in a move to discourage them from offering such schemes or products.

It has instead told banks to offer uniform interest rates and processing fee on EMI-based credit card schemes for retail products.

“The interest rate charged is camouflaged. It is passed on to the customer as processing fee by banks offering zero per cent EMI schemes on credit card outstanding for purchasing retail products,” the RBI said.

The very concept of zero per cent interest “is non-existent,” it said.

“Fair practice demands that the processing charge and RoI (rate of interest) charged be kept uniform, product and segment-wise, irrespective of the sourcing channel,” it added.

Such schemes only served the purpose of “alluring and exploiting vulnerable customers,” the RBI pointed out. The only factor that could justify differential RoI for the same product, with tenor being the same, was the risk rating of the customer, it said.

This, the RBI felt, might not be applicable in the case of retail products where the RoI was kept flat, and was indifferent to the customer risk profile.

The RBI also asked banks to terminate their relationships with merchant establishments which levied a fee on customers who make payments for goods and services through debit cards.