Refrain from 0% interest schemes: RBI

Mumbai: The Reserve Bank of India (RBI) has advised banks to refrain from linking their names in any manner with an incentive-based advertisement where clarity regarding interest rate is absent.

Loan schemes that provide low or zero per cent interest rates on consumer durable advances to borrowers through adjustment of the discount available from manufacturers or dealers and lack of transparency in operations distort pricing mechanism of loan products, the RBI said in a notification to all scheduled commercial banks.

Some banks were also promoting such schemes by releasing advertisement in different newspapers and the media, indicating that they were promoting or financing consumers under such schemes, it said. “These products do not give a clear picture to customers regarding the applicable interest rates, and banks should, therefore, refrain from offering such products.”

The RBI said as per the 9 August 2001 circular, banks are required to charge interest on loans for purchase of consumer durables at the rate not below their prime-lending rate regardless of the size of the loan amount.