This festive season, play your cards right

Oct 14 2013, 09:50 IST
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SummaryRBI has banned zero per cent interest EMIs and has put ‘ifs and buts’ in credit cards transactions.

If shop-till-you-drop is what festivals entail for you, get ready to spend hard cash this time as the RBI has banned zero per cent interest EMIs and has put ‘ifs and buts’ in credit cards transactions

The Reserve Bank of India recently put an end to several unfair practices in retail banking through a series of customer-friendly circulars to commercial banks and credit card companies. Result: Consumer goods companies, retail chains and banks which were having a free run, alluring and exploiting gullible customers will have to be more transparent and rationale while doing business. The RBI comes just weeks before the onset of the festival season, and much to the chagrin of retail players.

The biggest move, of course, was the ban on zero per cent interest EMI's (equated monthly installments). Retail chains, companies and banks had a field day hawking smartphones, LED TV, air-conditioners and microwave ovens. Since the very concept of zero percent interest is non-existent and fair practice demands that the processing charge and the interest charged should be kept uniform product or segment wise, such schemes only serve the purpose of alluring and exploiting the vulnerable customers, the RBI says.

“There is no ban on giving loans on credit cards. Don’t charge 12 per cent actually (in the form of processing charge etc) and claim that I am charging only zero per cent interest. We are not saying you give a loan and say that no EMI has to be paid... absolutely no problem. The only thing is whatever the EMI has to be paid, transparently say, what is the interest rate you are charging,” RBI Deputy Governor KC Chakrabarty said.

The biggest loss for a customer would be forgoing the cash discount on a product that a customer could have otherwise got if he had bought it on full payment. This is on top of the transaction or processing fee under the zero per cent scheme and consequently more money through EMIs.

For example, a customer decides to buy a smartphone that costs around Rs 48,000 using the zero per cent finance scheme. Under the scheme, the customer will pay the entire cost in six EMIs of Rs 8,000 for six months. This works out to be Rs 48,000 spread over a period of six months. However, the customers unknowingly pays a processing fee of Rs 1,000. Since he’s buying the

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