Comments
While banning banks from offering zero per cent interest equated monthly instalment schemes (EMIs) for consumer durables, the RBI order was silent about non-banking finance companies. NBFCs offer similar schemes and account for about half of the Rs 2,000-crore EMI consumer durable space.
According to an RBI official, the apex bank’s Department of Non-Banking Supervision is currently weighing the options of asking NBFCs to desist from offering opaque zero per cent interest EMI schemes as well.
Meanwhile, the move by the RBI, which regulates both banks and NBFCs, has resulted in confusion and heartburn in the market.
“What this partial ban will do is to direct customers towards NBFCs…..NBFCs continue to advertise zero per cent interest; take almost four months interest upfront, charge interest in the form of processing charge,” says Sachin Oswal, Chief Operating Officer of e-commerce site Infibeam.
Adds Jairam Sridharan, Head-Consumer Lending and Payments, Axis Bank, “These schemes had become popular of late among consumers and they used to take large-ticket loans under this scheme. However, customers were making choices without knowledge of complete facts.”
“NBFCs cater to a lot of non-urban population across more than 77 cities who don’t understand the intricacies of their schemes. Hence, uniformity of the RBI ruling would be in the consumers’ interest,” Oswal adds.
According to Oswal, there could be a 10-15 per cent drop in sales of consumer durables during the ongoing festival season as banks have been banned from offering zero per cent EMI schemes.
Fallout
However, Nilesh Gupta, MD of Vijay Sales, one of Mumbai’s largest chain of electronic superstores, does not see the ban vastly impacting sales at his retail store because sales under such schemes constitute only 12-15 per cent of overall sales of electronic goods and consumer durables at his outlets. But, it is worth noting that Vijay Sales has a tie-up with Bajaj Finserve to serve clients who need financing to buy consumer durables.
Adds K.V.S. Manian, President-Consumer Banking, Kotak Mahindra Bank, “Overall, customers who were gaining through this (scheme) will be impacted. But I think manufacturers will find a way out to pass on the benefits to consumers to improve their sales.”
As far back as 2001, an RBI had issued a circular which asked banks to end the practice of offering zero per cent equated monthly instalment (EMI) schemes for purchase of consumer durables. Banks were not allowed to charge interest on purchase of consumer durables at below their benchmark prime lending rate (BPLR). Later, from July 2010, banks moved on to the base rate system. And banks were not allowed to lend at below the base rate.
So, the practice of banks offering zero per cent interest rate schemes was always a clear violation of the RBI’s regulations, points out the RBI official quoted above.
While that issue has been sorted out for now, the larger issue of having similar rules for NBFCs too operating in the space remains to be settled.
(With inputs from Beena Parmar, Priyanka Pani and K. Ramkumar)
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.