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RBI cautions banks on zero p.c. interest scheme

MUMBAI AUG. 22. The Reserve Bank of India 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, which provide low/zero per cent interest rates on consumer durable advances to borrowers through adjustment of discount available from manufacturers or dealers, 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 media, indicating that they were promoting/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, it added.

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

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