Allow loans on credit cards but tell customers how much EMI to pay: RBI to banks

The Reserve Bank on Wednesday said it did not have any problem with banks offering loans to credit cardholders while purchasing goods or services but there needs to be transparency with the process.

"There is no ban on giving loans on credit cards. Don't charge 12 per cent actually and claim that I am charging only zero per cent interest," RBI Deputy Governor K C Chakrabarty told reporters.  It could be noted that RBI had last month banned zero per cent interest schemes offered by various bank to credit card holders saying the scheme lacks transparency. The move is likely to dent banks festive season sales.

"We are not saying you give a loan and say that no EMI has to be paid...absolutely no problem. The only thing is whatever the EMI has to be paid, transparently say, what is the interest rate you are charging," Charkrabarty said.  He said the timing of the ban on zero per cent interest schemes was perfect as during festive seasons mis-selling remains at peak.

When asked whether credit off-take will pick up since some banks have reduced lending rates on select products, Chakrabarty said banks are already giving too much loans.

"Our problem is that banks are giving too much loans. It is not our concern, the bank which must be able to mobilise the resources," he said.  "Our concern is that banks are not able to mobilise deposits, but they are giving more loans. So, how they will do that, that's what we are worried," Chakrabarty said, adding that the credit to deposit ratio is 78 per cent and the incremental CDR is more than 80 per cent.

"We have no problem if banks can give as much as loan they can to whatever sector they feel is important. In our view credit is necessary for productive purposes. SMEs and agriculture require more credit," Chakrabarty added.