 "Durables retailers dismayed at RBI move")
RBI’s move to red-flag zero per cent financing schemes is expected to hit the sales of consumer durable companies in the crucial October-December festive season.
As much as 20-30 per cent of industry sales come from equated monthly instalment (EMI) schemes, which play a big role in luring consumers to purchase products, especially at the premium end. In recent years, zero per cent financing has become attractive as consumers aspire to buy the latest products, especially in categories such as mobile phones and television sets.
Samsung, for instance, introduced 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.However, with the central bank now insisting these transactions be spelt out clearly, manufacturers and retailers say this could impact business. Nilesh Gupta, chief executive officer, Vijay Sales, a known Mumbai-based consumer durables retailer, says he sees the size of transactions coming down. “On an average, the ticket size of EMI-driven sales, especially zero per cent-led deals, is Rs 15,000-17,000. I see it coming down by 15-20 per cent,” he says.
Rajan Malhotra, president, retail strategy, Future Group, which runs consumer durable stores under the eZone brand, 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.”
Himanshu Chakrawarti, chief executive officer, The MobileStore, a popular phone retailer, says: “The timing of the note is really bad. It comes just ahead of the festive season, in the midst of a weak economic environment. Ideally, they should have given three-four months to implement this order. Immediate implementation is difficult.” The MobileStore was the first retailer to introduce credit card-based EMI schemes in mobile phones, with 30 per cent of its sales from these transactions. The Mobile Store as well as Vijay Sales continue to run interest-free schemes. Persons in the know say other consumers durables retailers also continue to run such schemes despite RBI’s move.
<B>How these schemes work</B><BR>
Basically, manufacturers and retailers subisdise these transactions by paying the financier the interest and processing fee that is waived to the consumer.
What the central bank, according to persons in the know, is insisting is that the financier, in this case banks, should clearly mention in the first bill the amount of interest cost being borne by manufacturers/retailer. And, that the bill amount reflect the total interest burden borne, using the reducing balance method.
Manufacturers and retailers say banks are not in consumer durable financing; it is non-banking finance companies (NBFCs) which are. “And, I don't think RBI's current move speaks about clamping on NBFCs,” says Y V Verma, chief executive officer, MIRC Electronics, owner of the Onida brand of durable products. Says Rajeev Jain, business head, home appliances, LG Electronics India: “I am still not clear what RBI really wants. Once their notification comes, the matter should be clear.”
Bajaj Finance, the largest entity in the space, could not be reached for comment.
Some companies say the move is directed at payments made through credit cards, since the intervention of banks here is direct and they do not spell out the processing fee or the interest cost that manufacturers/retailers have to bear. “Typically, banks charge a merchant service fee, in addition to the processing fee, all borne by the manufacturer and retailer on zero per cent deals. None of this is mentioned in the bill to the consumer. My sense is that RBI is now insisting this be mentioned in the final consumer bill,” says Gupta of Vijay Sales.