RBI breaks silence on misleading retail finance schemes

RBI breaks silence on misleading retail finance schemes
The Reserve Bank of India (RBI) on Wednesday said it is the responsibility of the banks, which use their good offices to get the better bargain, to make the customers fully aware of the benefits and also pass on the benefits to them fully and indiscriminately while sanctioning loan for the purchase.

RBI said this should be done without tampering with the applicable rate of interest (RoI) of the product.

"If there is a discount offered in the price of a product, the loan amount sanctioned for the purchase should be after taking into account the discount, rather than giving effect to the benefit by reducing the RoI," said RBI in a notification released on Wednesday.

RBI also cracked the whip on the zero percent EMI schemes where the interest element is often camouflaged and passed on to customer in the form of processing fee. RBI said some banks were loading the expenses incurred in sourcing the loan (viz DSA commission) in the applicable RoI charged on the product.

"Since the very concept of zero percent interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product/segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers," said RBI.

The central bank also said levying a charge on the customer who make payments for purchase of goods and services through debit cards is also unjustified.

"Such fee are not justifiable and are not permissible as per the bilateral agreement between the acquiring bank and the merchants and therefore calls for termination of the relationship of the bank with such establishments," said RBI.

Dion Global Solutions Ltd.

Story first published: Thursday, September 26, 2013, 9:10 [IST]
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