‘Subvention schemes should continue’

The Reserve Bank of India has instructed banks to abstain from unfair and opaque pricing of products and also instructed against zero interest EMI schemes.

The Reserve Bank of India has instructed banks to abstain from unfair and opaque pricing of products and also instructed against zero interest EMI schemes. Pallav Mohapatra,CEO,SBI Cards spoke to Sandeep Singh and told that he will write to the RBI on continuing with subvention schemes as they benefit all and banks in turn will become fully transparent in their disclosure to consumers. Excerpts:

Will all such schemes listed by RBI go off the shelf?

In cases where the schemes are run by merchants and manufacturers,since they dont fall under RBIs regulations they will continue. However,the schemes where credit card companies were involved with the manufacturer and dealer they will have to look into RBI advisory as credit cards are regulated by RBI.

Do you think consumers were at the receiving end and even on zero interest EMI schemes they were paying high interest rates by way of surcharge,etc?

There were two types of schemes under the zero interest EMI schemes. One with processing fee and other without processing fee. In the one with processing fee consumers were being charged interest in the name of processing fee that varied from 2-5 per cent of the product cost and in the other scheme without processing fee,the interest component was paid by the merchant or the manufacturer to the card issuer.

Do you agree with RBIs decision?

I totally agree on RBIs advisory on the scheme where the processing fee was charged as the consumers were paying interest in the guise of processing fee. However,I feel that the subvention scheme where the interest cost is born by the merchants or manufacturers and is beneficial to all should be continued. I think that RBI is against it because it feels that the accounting integrity is not maintained and the customers are not told that the interest in such cases will be paid by the merchant or manufacturer.

So what do you plan to do?

I will write to RBI on the same. I think that if we disclose to the consumers that the interest on the financing is paid by the merchant/manufacturer then RBI will look into the same. The subvention scheme benefits all the consumer gets financing for free,the merchant and manufacturer can boost their sales and we also benefit. It also helps consumerism and will help growth in the economy.

What will be the impact of stopping these schemes?

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If we stop this scheme our annual spend will be hit by anywhere between Rs 600-Rs 1,000 crore and the industry will take a spending hit anywhere between Rs 15,000 crore and Rs 20,000 crore every year.