Reserve Bank of India has initiated a move that is going to affect the festive season sales of retailers. RBI has banned the 0% interest schemes provided by banks to their credit card holders. Only if the customers are billed regular interest charges, the banks will be able to recover dues via EMI installments. RBI has described the 0% interest scheme as ‘pernicious practice’. It has claimed that such a scheme deters accounting integrity and customer protection.
They believe that such practices prevent customers from making informed choices as it lures and exploits vulnerable customer. Also, it vitiates the transparency in the pricing mechanism. Also, RBI has stated that 0% EMI schemes are against its lending norms.RBI’s ban on 0% EMI schemes is going to affect the sales of mobile phones to a great extent because leading mobile vendors, such as Nokia, Samsung, Blackberry, Apple and LG were offering such schemes on their smartphones on select credit cards.
It was the major reason for increase in sales of the high end mobile phones which will now come down. Retailers are against this move as they stated that it will deprive the customers of a good or facility which they could not afford otherwise. Also, certain data has revealed that more than Rs. 1,000 crore of billings out of the monthly credit card billings of Rs. 11,000 crore comes from purchases billed under equated monthly installments.
The major banks are planning to approach the Reserve Bank of India in order to see if they will agree to the zero percent EMI scheme if the banks convey to their customers that the funding will come through discounts by the retailer. RBI has also asked banks to end their relationship with the retailers and merchants who charge customers more if they make payments by debit card.