rbi regulates zero per cent interest rate scheme .docx

7/27/2019 RBI REGULATES ZERO PER CENT INTEREST RATE SCHEME .docx

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RBI BANS ZERO PER CENT INTEREST RATE SCHEME FOR

BUYING GOODS

In order to promote transparent pricing of products and furthercause of customers protection, the Reserve Bank recentlybanned zero per cent interest rate scheme for purchase ofconsumer goods through credit cards.The decision which has far reaching impact may in short-rundampen festive spirit as sales of white goods goes up substantiallyduring Diwali seasons. According to some estimates as much as 40per cent of sales in some cases are through zero per cent interestrate scheme.Meanwhile, the central bank has also said that no additionalcharges could be levied on payment through debit cards."...in principle, banks should not resort to any practice that woulddistort the interest rate structure of a product as this vitiates thetransparency in pricing mechanism which is very important for thecustomer to take informed decision," RBI said in a notification.The very concept of zero per cent interest was non-existent and fairpractice demanded that the processing charge and interest chargedshould be kept uniform product or segment wise, irrespective ofthe sourcing channel, such schemes only served the purpose ofalluring and exploiting the vulnerable customers, it said.In the zero per cent EMI schemes offered on credit cardoutstandings, the interest element is often camouflaged and

passed on to customer in the form of processing fee."Similarly, some banks were loading the expenses incurred insourcing the loan (viz DSA commission) in the applicable rate ofinterest charged on the product," RBI observed.The notification further said that the only factor that could justifydifferential rate of interest for the same product, tenor being thesame, was the risk rating of the customer, which might not beapplicable in case of retail products where the interest wasgenerally kept flat and was indifferent to the customer risk profile.With regard to subvention, it said, the loan amount sanctioned forthe purchase should be after taking into account the discount,

rather than giving effect to the benefit by reducing the interest.Similarly, the RBI notification said: "If there is a moratorium periodfor payment available, the benefit should be passed on to thecustomer by ensuring that repayment schedule, including theinterest servicing, commence after the moratorium period onlyrather than adjusting it in the interest."Thus in principle, banks should not resort to any practice thatwould distort the interest rate structure of a product as thisvitiated the transparency in pricing mechanism which was veryimportant for the customer to take informed decision, it said.

Discounts on price or moratorium period for payment are oftenoffered by the dealers or manufacturers on their products to the


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customers while they make the purchase by availing loans frombanks.In such instances, it is the responsibility of the banks, who areusing their good offices to get the better bargain, to make thecustomers fully aware of these benefits and also pass on the

benefits to them fully and indiscriminately while sanctioning loanfor the purchase, it said.On levying additional fees on debit card transactions, RBI saidthere are instances where points of sales levy fee as a percentageof the transaction value as charges on customers who are makingpayments for purchase of goods and services through debit cards."Such fee are not justifiable and are not permissible as per thebilateral agreement between the acquiring bank and the merchantsand therefore calls for termination of the relationship of the bankwith such establishments," it said.

"These practices or products thwart the very principle of fair andtransparent pricing of products which behold customer rights andcustomer protection, especially, in the more vulnerable retailsegment," it said.Such practices violate, both in letter and spirit, various provisionsof master circular on interest rate on advances "and therefore, you(banks) are advised to strictly desist from these practices henceforth," it added.In another consumer friendly decision, the RBI directed banks willhave to bear the cost of fraudulent card transaction through pointof sales that do not have prescribed security features. At the same

time, it refused to give further extension to banks for complyingwith security norms."It has been decided not to grant any further extension of time.Accordingly, banks not complying with the requirements shallcompensate loss, if any, incurred by the card holder using card atPOS (points of sale) terminals not adhering to the mandatedstandards," a notification said.In this context, it said, since the card holder would be approachingthe card issuing bank for any fraudulent POS transaction in Indiawhich have occurred after September 30, 2013), the bank shouldclaim the amount paid by it to the customer from the respectivebank which have acquired the POS transaction in question.The card issuing bank would ascertain, within three working daysfrom the date of card holder approaching the bank, whether therespective POS terminal where the said transaction occurred wascompliant with mandated security features, it said.In the event it was found that the POS terminals were noncompliantas mandated, it said, the issuing bank should pay thedisputed amount to the customer within seven working days,failing which a compensation of Rs 100 per day would be payableto the customer from the eighth working day.

The acquiring banks have to pay the amount paid by the bankwithout doubt within three working days of the issuing bank


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raising the claim, failing which the RBI would be constrained tocompensate the issuing bank by debiting the account of theacquiring bank maintained with the bank, it said.The notification further said it was also clearly emphasised incircular dated June 24, 2013 that no further extensions would be

granted.In addition, it was also indicated that in the event of a customercomplaining of misuse of card after the date stipulated in thiscircular, the issuer or the acquirer who had not adhered to thetimelines should bear the loss, it added.

rbi regulates zero per cent interest rate scheme .docx

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