What changed
RBI issued a circular on September 17, 2013, reiterating that banks must not adjust interest rates to pass on dealer subventions or moratorium benefits; instead, discounts must reduce the loan amount and moratorium must delay repayment start. Zero percent EMI schemes that hide interest as processing fees are banned, and banks must not vary interest rates based on sourcing channel. Merchants levying fees on debit card transactions violate bilateral agreements and banks must terminate such relationships.
What it means for you
Banks must ensure full transparency in loan pricing, especially for retail customers. Any dealer discount or moratorium must be passed on directly without tinkering with the interest rate. Zero percent EMI offers that camouflage interest as fees are no longer acceptable. Banks must also stop loading sourcing commissions onto interest rates and enforce merchant compliance on debit card fee bans.
What you must do
- Review all retail loan products to ensure dealer subventions and moratorium benefits are passed on by adjusting loan amount or repayment schedule, not the interest rate.
- Discontinue any zero percent EMI schemes that hide interest as processing fees; ensure all charges are transparent.
- Standardize interest rates for the same product and tenor irrespective of sourcing channel; only risk rating can justify differential pricing.
- Audit merchant agreements to ensure no debit card transaction fees are levied on customers; terminate relationships with non-compliant merchants.
- Train frontline staff and product teams on these fair practice guidelines to avoid regulatory action.
Who it affects
All scheduled commercial banks (excluding RRBs), Local area banks
Can we still offer zero percent EMI on credit cards?
No. RBI has clarified that zero percent interest is non-existent; such schemes hide interest as processing fees. You must discontinue them and ensure all costs are transparently disclosed as interest or fees.
How should we pass on a dealer discount on a car loan?
The discount must reduce the loan amount sanctioned, not the interest rate. For a moratorium, the repayment schedule should start after the moratorium period ends, without adjusting the rate.
What if a merchant charges a fee on debit card payments?
That is not permissible under the bilateral agreement. As the acquiring bank, you must terminate the merchant relationship if they continue such practices.