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The Reserve Bank of India's (RBI) advisory against the practice of banks offering customers the option of staggered payments on big-ticket purchases, including those made on credit cards, in zero-interest monthly installments (EMI) schemes, could come as a dampener for consumers just ahead of the festive season.
Consumer durable manufacturers are among those who offer the zero per cent facility, mostly on high-value purchases in categories such as smartphones, laptops, LED TVs and top-end home appliances. With the central bank demanding more disclosures on the scheme, banks have now started withdrawing the scheme ahead of the festival season.
“The scheme had pushed up retail loans and sales of white goods companies, especially smartphones, LCD TVs and other appliances. Following the RBI’s reservations, we have no other option but to withdraw the scheme,” said an official of a private bank.
“The scheme is as good as over. Such schemes are centralised and can be stopped any time,” said another bank official.
In an operational circular issued last week, the RBI has sought more disclosures under the zero per cent EMI scheme as the central bank was worried over the “hidden costs” involved. “The RBI has not banned the scheme. The central bank wants full disclosures to the customers. This inlcudes the processing charge. Banks were not disclosing the processing charges and loss of cash discount to the customers. The RBI felt it was not right on the part banks to not disclose the hidden charges,” said an official.
Even as large banks such as the State Bank of India do not expect to see an impact on their portfolio on account of zero per cent schemes being phased out, consumer durable firms anticipate the measure would end up hurting most companies, forcing them to recalibrate their strategies.
Responding to the RBI move to clampdown on such schemes, Shantanu Dasgupta, vice president, corporate affairs and strategy, Whirlpool said: “To some extent this will hurt all of us (in the durables segment). We have run the schemes with the understanding that it was legitimate; now we will have to recalibrate our plans.”
A representative from another consumer durables company admitted that when offers (such as zero interest) are doing the rounds, demand does spike. “But we don’t think the RBI position will impact companies selectively. We are all impacted; but if consumers know they have no choice, they will come to shops with that understanding.”
When asked about the move, SBI managing director A Krishnakumar said the bank does not have any such schemes. SBI managing director (associates and subsidiaries) S Vishwanathan, however, clarified, “I cannot categorically say there is no such offering from SBI Cards as I have not checked with them. But SBI does not have any such offers.”
Central Bank seeks clarity
* RBI says the interest component in the scheme is generally hidden and effectively passed on to consumers in the form of a higher processing fee or annual charge
* Consumer durable firms anticipate the step would end up hurting most companies, forcing them to recalibrate their strategies
* With the RBI demanding more disclosures, banks are now withdrawing the scheme