RBI bans 0% interest scheme on purchase of consumer goods

Status
Not open for further replies.
sharktale1212 said:
^ I dont think manufacturing companies care about whether to factor in the interest rates. What really happens is the first - mount Everest scenario ..mrp listed is a bomb compared to actual manufacturing + tax paid price. An easy example is say the refined oil costs, a 1 litre pouch costs of Fortune Sunflower is 125/- MRP. Retailers give you a discount anywhere from 20-25/- selling for 99-100ish, even with that price they make a hefty 10-15/- profit.
So I guess the whole 0% interest thing means everyone quotes 125 as a price and says 0% interest + waived off processing fee. If it makes more money than conventional pricing why bother with actual price. And we all wonder why the phones, TVs actually cost over and above the foreign price + customs paid.
Click to expand...
At the launch of a product, the EMI works off the MRP, you get 3-6-x months to settle instead of a lumpsum to pay MRP. What EMI does is allow people to buy at MRP. Why wouldn't a financier agree to such a deal. People will pay on time or pay more interest so he gets his money back. The retailer gets more sales. The customer gets a product on a pricing schedule he can handle. Where is the problem here.

This RBI ruling isn't going to make products cheaper to buy. In fact pricing the product plays a major role in whether people will buy the product in the first place. Ideal MRP is upper range of what people can afford.

After a few months the price comes down. You don't get EMI for discounted products, well, after few more months they start to offer cashback but that's something else. More an inventory clearing exercise as well as maintaining sales targets.

Am still scratching my head as to the intent of this RBI move and what the implications will be for buying things in the future. What changes can we expect from now on. Anyone want to comment on that ?
 
blr_p said:
At the launch of a product, the EMI works off the MRP, you get 3-6-x months to settle instead of a lumpsum to pay MRP. What EMI does is allow people to buy at MRP. Why wouldn't a financier agree to such a deal. People will pay on time or pay more interest so he gets his money back. The retailer gets more sales. The customer has a product at a pricing timetable he can handle. Where is the problem here.

This RBI ruling isn't going to make products cheaper to buy. In fact pricing the product plays a major role in whether people will buy the product in the first place. Ideal MRP is upper range of what people can afford.

After a few months the price comes down. You don't get EMI for discounted products, well, after few more months they start to offer cashback but that's something else. More an inventory clearing exercise as well as maintaining sales targets.
Click to expand...
Now this tells a lot, doesn't it? If the price is justified why does it need to even go down in few months (in discount or roundabout discount called cashback)? It is just that we are running on a yearly upgrade circle, are ready to buy it on EMI and then bash people buying iphones for 2-3k USD (for those buying the 2-3k USD iphone the logic works the same way - whats wrong if they can afford and handle pricing timetable etc). Ironic isn't?
Frankly, my post was more towards why retailers even bother with 0% EMI and processing fee waived - the high markup, not on RBI mandate being correct or incorrect. I cant be sure if the retailers will stop these practices or whether we will have a hallelujah moment of stumbling consumer prices. Given that there hasn't been a clear notice as to what exactly RBI wants, we are just speculating on the why they did this. Some say, they have asked the high markup to show up on the bills as interest + processing fee. Will it mean that we will go into a regime of current MRP + interest or we will see (MRP - interest) + interest, it remains to be seen.
 
Speculating ? sure. There is a lack of clarity and these are just attempts to better understand the implications. Is it a good or a bad thing ? for whom etc. Will it curb demand ? only if it makes thing more expensive than previously.

Is there a pricing racket going on which this move specifically addresses. Cannot immediately see it.

Thing is this applies to ALL EMI's. EMI's are used to buy houses, vehicles, tvs, gadgets. Did i miss out anything else more important ?

This move is targeting many industries in one go and its going into the financing of these industries. Pushing for more transparency we are to understand. I do not have such a broad vision to understand its implications as yet.
 
Last edited:
ashishsahu said:
Did i say they turned altruistic? it will be naive to assume any business working under that nature. they bank on the default payment on the part of the customer, earning on penalty fees on these 0 % emi's, again bajaj finserve doesn't runs on "penalties" only if you will quote me again.

And who is maligning RBI? i had written this move is to curb demand of the consumer durables. is that shredding the dignity?
Click to expand...
Not all of that reply was for you :P

You are so convinced about your opinion, I would hate to break it. Read the posts above, articles have been quoted why show how prices are adjusted to cover costs.

Again to put it in simple words, you pay for what you use. There is no free lunch. Some of it is compensated by higher sales, then again there are irrecoverable defaults too and I dont think anyone in their right minds thinks of this as a good business model,(earning on defaults which are a whole different ball game.)
 
you are so fixated in your opinion, i have already written in my post, go read it, that before you jump to that stupid conclusion that businesses thrive on defaults ( i knew you would jump to that idiotic conclusion w/o any basis, that's why had to clear in my last post itself)
 
Mumbai: The RBI today banned zero per cent interest rate scheme for purchase of consumer goods, a move intended to protect customers but may dampen the festive spirit. The central bank has also said that no additional charges can be levied on payment through debit cards. "...in principle, banks should not resort to any practice that would distort the interest rate structure of a product as this vitiates the transparency in pricing mechanism which is very important for the customer to take informed decision," RBI said in a notification.

The very concept of zero per cent interest is non-existent and fair practice demands that the processing charge and interest charged should be kept uniform product or segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers, it said. In the zero per cent EMI schemes offered on credit card outstandings, 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 in sourcing the loan (viz DSA commission) in the applicable rate of interest charged on the product," RBI observed. The notification further said that the only factor that can justify differential rate of interest for the same product, tenor being the same, is the risk rating of the customer, which may not be applicable in case of retail products where the interest is generally kept flat and is indifferent to the customer risk profile. With regard to subvention, it said, 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 interest..


http://in.finance.yahoo.com/news/zero-percent-interest-schemes-really-022246133.html

i purchase lot's of stuff from internet on 0% emi without precessing fee and they cost cheap then local shop :dead:
 
i purchase lot's of stuff from internet on 0% emi with zero processing fee and they cost cheap then local shop

even sometimes i got more discount then processing fee and cost of product is still high on local store . also this local shop owner make us chu sometimes saying "ye product band ho gya" "isme fault hai ye mat lo "
 
blr_p said:
Am still scratching my head as to the intent of this RBI move and what the implications will be for buying things in the future. What changes can we expect from now on. Anyone want to comment on that ?
Click to expand...

these rules are more applicable to offline purchases than online purchases since the % of online purchases is still very low compared to offline purchases.

need to elaborate with an example.
Ex: i meant to buy an HDTV from on offline store.
i ask for the quote from each and every store. they quote the price as 48K. to that price they are ready to offer 0% interest scheme. the MRP on the box lists the HDTV @ 55k.
when undergoing for negotiation, the shopkeeper asks how we intend to purchase the product, if we say loans , the prices stay @48k. if we say payment upfront, he was ready to bring down the price to 42.5K.

so the interest turns out to be around 5.5k for the item.
 
  • Like
Reactions: ankit360
Ah, so they say 0% when in reality it isn't. Your example shows the difference upfront.

They can still play with semantics here ie you will not be paying any interest but the EMIs will be paid based on a higher cost price (48k) than if it was paid upfront (42.5k).
 
Bumping this old topic...

Shouldn't there be some leeway for 3-6 months short term loans which have zero processing & zero interest.. Since many but not most buyers would wait for a cashback or a discount coupon & compare the price on-line. Here is an example..

I bought a PHILIPS Steam Iron from an on-line shop after comparing with 5-6 websites...

MRP. 2999/-
Lowest local available Rs. 2600/-
Lowest On-line Price - Rs. 2190/- (With bill from PHILIPS Arena)
I used a 15% off coupon & brought the price to 1861.50/- . Paid with EMI of Rs. 621/- for three months..

Now I have made similar purchases for products valuing 5-6k but using either a cash-back or discount coupon & paid using EMI. With the latest ruling I now have to pay 13% interest & zero processing for all the EMI transactions no matter if its 3 months or 12 months.. The interest component eats away my discount almost completely since its highly unlikely to get 10-15% off coupons nowadays.In reality now I'll have to pay more for EMI option...

In my opinion this move was disguised purely to curtail retail spending on borrowed money. A move to contain inflation, not much effect on inflation though. I understand if its for a longer tenure loan like 6-12 months where consumers are taken for a ride in the garb of processing fee especially in retail stores. But with on-line stores the story is slightly different.. The discount coupons help to reduce the price & the zero processing + zero interest EMI works out the best. of-course it works on very short term borrowing & a lot depend upon the consumer's spending/paying pattern. It gives an opportunity to the credit card companies to lure people into defaulting but in the end its the concerned buyer which will loose out the most sincerely paying the dues..
 
  • Like
Reactions: ayanavish
Status
Not open for further replies.
Top Bottom