“Buy A Samsung Galaxy S5 at 0% interest rate and no need for credit card,” said a sign outside a Mobile Store in South Delhi. The multi-brand cellphone chain is offering such schemes on not just Samsung products but also on other brands.
What’s sur prising is that just last year, in September, the Reserve Bank of India (RBI) had issued a circular asking banks to discontinue all zero equated monthly installment (EMI) schemes on retail products, saying that these violate fair and transparent pricing practices for customers. The central bank had asked for more transparency in terms and conditions around charges, and the final and total amount that the consumer would end up paying under such schemes.
In zero EMI schemes offered on credit card outstanding, the interest element was often camouflaged and passed on to the customer in the form of processing fee.
After the RBI issued the circular, retailers had indeed reduced the number of such schemes. So, how are some still able to offer such deals? By bypassing banks and tying up with manufacturers directly.
Apart from that, these schemes are being offered in collaboration with non-banking finance companies (NBFCs), and not banks.
“All banks that were offering such schemes have withdrawn them after the RBI announcement. Retailers can offer these schemes only through tie-ups with NBFCs. RBI stopped only banks from offering such schemes, not NBFCs,” a senior executive at a private bank said.
This is also the reason why you will not be able to avail such offers if you want to pay using your credit or debit card.
Other than the Mobile Store, there are also reports that stores such as Planet M Retail and Future Group, too, are in the process of re-launching such schemes.
“The charges are more transparent now. It is actually zero interest, and there are no hidden costs,” said Himanshu Chakrawarti, chief executive officer, Mobile Store.
Earlier, the EMI options that were offered through bank tieups had an interest element.
What happens now is that the retailers and manufacturers share the interest cost on such offers that were earlier taken on by banks and brands. What’s more, the “0% EMI” deals will be on the market operating price and not the maximum retail price, as it used to be earlier. Market operating price is the lowest price at which a retailer can sell a product and is set by brands or manufacturers. Though retailers have new arrange ment s in place to replace their bank tie-ups, the process isn’t easy.
For instance, to avail Mobile Store’s offer, you need to give three months’ salary slips, a cancelled cheque and an identity proof. And the offer isn’t open to everybody and on all phones — only those who earn more than Rs 20,000 a month can avail of the scheme, and the cost of the phone has to be more than Rs 15,000.
The 10-month EMI payment structure for a new Samsung Galaxy S5 (which costs Rs 46,000) would be: downpayment of Rs 13,800 (that’s three months’ EMI), and installments of Rs 4,600 for seven months.
Details of such offers vary across retailers. “We provide EMI options (including zero interest ones) to our consumers on a wide range of products — LED televisions, appliances such as ACs, refrigerators, mobile phones, and so on — through NBFCs Bajaj Finserv, Tata Capital and Capital First,” said Ajit Joshi, MD, Infiniti Retail Ltd, which owns the Croma stores. Depending on the scheme, there are charges like processing fee, he added.
The reason why retailers found alternate solutions when the RBI stopped banks from offering zerointerest EMI offers is simply consumer demand. Rahul Soota, executive director, My Money Mantra, a financial products distribution firms, said the new schemes are a convenient mode of payment for consumers. “With no hidden costs, these are actually zerointerest schemes.”
Always do your homework before signing on the dotted line. Ask the stores to give you a break-up of the EMI that you will be paying, and the total amount. Be doubly sure to ask about any extra charges. For instance, at Vijay Sales, for a Sony LED television that costs
Rs 37,150, you will have to make a downpayment of Rs 12,550 and EMIs of Rs 3,075 for eight months. So, there is indeed no interest; but there is a one-time processing fee of Rs 250.