With a view to protecting consumers against paying hidden interest amounts, the Reserve Bank of India (RBI) has banned banks from giving out zero percent interest rate schemes on credit card purchase of consumer goods. The move, which comes just ahead of the festive season, is sure to hit the demand for electronic goods.

In a circular issued to banks on September 17, made public on Wednesday, the apex bank has directed banks to withdraw such schemes being offered on consumer goods “since the very concept of zero percent interest is non-existent”, with immediate effect.

According to the RBI circular, “In the zero percent EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to customer in the form of processing fee….. Such schemes only serve the purpose of alluring and exploiting the vulnerable customers.” The schemes, the apex bank said, are simply an eye-wash as the customers going in for such purchases end up paying more than customers who make payment upfront and get to avail certain discounts. 

The RBI further said, “These practices/ products thwart the very principle of fair and transparent pricing of products which beholds customer rights and customer protection, especially, in the more vulnerable retail segment.”

While many banks, the apex bank noted, have withdrawn such schemes, a few others still continue with them. The apex bank has given out clear instructions to the non-compliant banks to strictly desist from these practices with immediate effect.

The move comes as a dampener with the festive season just round the corner. Retailers now expect a slash in demand for electronic goods since a growing urban population was dependent on such schemes for making their purchases.

In addition to the above move, the apex bank has also instructed vendors/merchants/retailers to steer clear of levying fees on debit card transactions. “There are instances where merchant establishments levy fee as a percentage of the transaction value as charges on customers who are making payments for purchase of goods and services through debit cards. 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,” the RBI said.