RBI directs Banks to end zero interest EMI schemes

In a major blow to the banks and merchant establishments, the Reserve Bank of India has instructed banks to stop offering zero interest EMI (Equated Monthly Installment) schemes for the purchase of consumer goods in a bid to discourage them from offering such schemes or products.
RBI has asked banks to offer uniform interest rates and processing fee on EMI-based credit card schemes for retail products. The RBI also directed banks to terminate their relationships with merchant establishments which levied a fee on customers who make payments for goods and services through debit cards.

Why RBI has instructed banks against offering zero interest EMI schemes?

As per RBI, the very concept of zero per cent interest is non-existent and is only used by banks and others as a camouflage to lure and exploit gullible customers and 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. RBI wants banks to follow fair practice which, according to the central bank,  demands the processing charge and RoI (Rate of Interest) charged be kept uniform, product and segment-wise, irrespective of the sourcing channel.

Month: Current Affairs - October, 2013