"...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.