Home / Money / Calculators /  RBI ban on zero per cent schemes not really a dampener for festive sales

The news that the Reserve Bank of India (RBI) has banned 0% interest rate schemes on consumer durables is being perceived as a dampener ahead of the festive season. But is that really the case? Actually, no. Far from taking away a benefit, RBI has actually acted in your interest.

Look deeper into the schemes and you would find that these are not as attractive as they sound. The money you save by not paying any interest actually gets hidden in the processing fee and other charges.

0% interest schemes

Apart from regular household consumer goods such as refrigerators, washing machines and televisions, recently the 0% scheme was seen being offered even on mobile phones.

In the advertisements, mobile manufacturers and banks advertise that there is no processing charge, but if you read the fine print of the scheme, you will find that banks have started charging a processing fee on select smartphone products and for select tenors. It varies from bank to bank and even store to store. Generally, the average processing charge is in the range of 1.00-8.75% on the principal amount for three months to nine months. So for a phone costing 45,500, the processing charge can be as high as 3,982 or 8.75%.

Same is the case with televisions too. The processing fee is in the range of 1-8%. So if you want to buy a Sony LED television worth 99,900 through a loan, it will cost you 1,07,882, up 7,992 or 8%.

In this regard, the banking regulator stated: “In the 0% EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to the customer in the form of processing fee. Since the very concept of 0% interest is non-existent and fair practice demands that the processing charge and interest rate charged should be kept uniform across product or segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting vulnerable customers."

RBI also stated that some banks were seen loading the expenses incurred in sourcing the loan in the applicable interest charged on the product.

Says Adhil Shetty, CEO,, “The charges normally get hidden in the form of processing charges, convenience fee or a variation of loan schemes."

Clear benefits

A lot of times, banks adjust benefits such as discounts or moratorium periods by reducing the interest rates. While this makes the scheme attractive, the customer doesn’t know that it is coming at another cost.

Discount schemes: Says Suresh Sadagopan, a Mumbai-based financial planner, “There have been instances where dealers state that if you buy a product like a mobile phone, it will cost you say 28,000 if you pay upfront, while if you take a loan it will cost 30,000." RBI has stated that if there is a discount offered on the price of a product, the loan amount sanctioned should be after taking into account the discount, rather than giving effect to the benefit by reducing the interest rate.

Repayment after moratorium: Says Sadagopan, “If there is a person who wants a refrigerator and is short on cash, moratorium period is good for her as it is a convenience."

The central bank has stated that if there is a moratorium period for payment available, the benefit should be passed on to the customer by ensuring that repayment schedule, including the interest servicing, commence after the moratorium period only rather than adjusting it in the interest rate.


When a bank decides to provide loan on products, it is an agreement between the bank and the dealer. It is very difficult to find what the actual deal is. And in these agreements, banks benefit by increase in the number of loans and dealers benefit by increase in the items on sale.

RBI has asked banks not to tamper with the interest rate. The central bank said: “Subventions or discounts on price or moratorium period for payment are often offered by the dealers or manufacturers on their products to the customers while they make the purchase by availing loans from banks. In such instances, it is the responsibility of the banks to make the customers fully aware of these benefits and also pass on the benefits to them fully and indiscriminately while sanctioning loan for the purchase. This has to be done directly without tampering with the applicable interest rate of the product."

Mint Money take

Considering that practices such as charging hefty processing fee and calling it 0% interest scheme, tampering with the interest rate and not passing on the benefit of discount to the customer thwart the principle of fair and transparent pricing of products, RBI has asked banks to discontinue these schemes.

RBI is extending a helping hand to you, the customer, who should reciprocate by being vigilant. Says Surya Bhatia, a Delhi-based financial planner, “Though RBI has put forth the points, it is the customer who has to be careful. You have to understand the different between cash downpayment and 0% interest scheme. Always ask a lot of questions before you buy and compare the schemes. Always do the math before buying anything."

So this festive season, don’t get bought into by attractive schemes, but buy what you really need and know how much you are paying for it.

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