Retailers to approach RBI over 0% EMI schemes ruling

Leading consumer durable retailers under the aegis of the Retailers Association of India (RAI), a body of regional and national chains, will make a representation to the Reserve Bank of India (RBI) to defer its decision to ban zero per cent equated monthly installment (EMI) schemes.

On Wednesday, the central bank had come down heavily on these financing schemes saying they short-changed customers. RBI had said banks must pass on benefits like discounts to consumers who take loans to buy electronic and durable products.

"Since the very concept of zero percent interest is non-existent and fair practice demands that the processing charge should be kept uniform product/segment-wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers," the central bank had said in its notification. Retailers, however, say the timing of the move is inappropriate.

"It comes just ahead of the festive season in the midst of a weak economic environment. Ideally, they should have given three to four months to implement this order," says Himanshu Chakrawarti, chief executive of Essar group-owned The Mobile Store. "We will request RBI to implement the ban on zero per cent EMI schemes in three months time."  

Typically, the October to December period is crucial since 30 per cent of consumer durable and electronic product sales happen during these months.

Both retailers and manufacturers put their best foot forward during this period to maximise sales. EMI schemes play a big role here, with 20 to 30 per cent of industry sales especially at the premium end coming from these financing options.

In the last few years, zero per cent financing has become quite attractive as consumers aspire to buy the latest products, especially in categories such as mobile phones and television sets.

Says B A Kodandarama Setty, chairman and managing director of Chennai-based retail chain Viveks: "Business will be impacted as we go into the festive season. Retailers across the board are raising their voice about this."

Companies such as Samsung, for instance, were among the first to introduce EMI schemes in categories such as mobile phones last year. Rivals such as Apple and Nokia followed soon enough, making it affordable for consumers to own their products via EMI schemes.

But with the central bank now insisting that these transactions be spelt out clearly, manufacturers and retailers admit that it could impact business. Nilesh Gupta, chief executive officer, Vijay Sales, a popular Mumbai-based consumer durables retailer, says he sees the ticket size of transactions coming down.

"On an average, the ticket size of EMI-driven sales, especially zero-per-cent-led deals, is around Rs 15,000-17,000. I see it coming down by about 15-20 per cent," he says.

Rajan Malhotra, president, retail strategy, Future Group, which runs consumer durable stores under e-Zone says: "I don't think it (RBI note) is a great move. But if RBI has done it, they have their own reasons for that. Now, different schemes will come through in a different way."