Next time you go to buy a car or television in instalments, a salesman is unlikely to tell you that it comes at a zero rate of interest. Nothing comes for free. And the Reserve Bank of India (RBI) wants banks to tell you just that. Last month, the RBI sent out a curt message to all banks asking them to stop extending "zero-interest rate" loan schemes on consumer durables as these did not tell the consumers what exactly was the interest they were paying.

Banks adjust the discount available from the dealers of consumer goods against the interest due, and the commission which the bank gets from the dealers is never disclosed to the end customer. So for a Rs 3 lakh loan on a car, you would typically pay 12 Rs 25,000 monthly instalments in a zero-interest scheme. The dealer discount would be Rs 5,000 and the manufacturer will match it. The percentage earned by the bank would be 7.5 per cent (much lower than its normal rates), plus the 3 per cent commission it has to pay to the intermediary for bringing the customer to the financing bank. For the customer an easy way of calculating the hidden costs of this zero-interest loan is to compare the price with that on a cash down basis. Such schemes, the RBI believes, distort the pricing mechanism of loan products and violate the rule that the interest rate for consumer loans should not be lower than the banks' prime lending rate.

There has been a sharp spurt of such loans in the past six months as manufacturers tried desperately to push sales in a depressed market. Leading the pack were a clutch of private-sector banks. Non-banking finance companies, which have surprisingly been left out of the RBI diktat, too were active players in this game. But now they too are desisting from such schemes. "The heavy discounting game was helping no one and collecting invoices from dealers and collecting the payments was a logistical nightmare," says a bank official.

The RBI ban is unlikely to deter dealers. They will come up with other ways to push their sales. Either way, the consumer has little to complain about.

-Vivek Law

Green Buys

At the Johannesburg World Summit on Sustainable Development, crafts carried labels saying "The material for this item was obtained in a sustainable manner", giving buyers an assurance that it was not produced through environ- mentally destructive processes, poaching, etc.

As consumers we focus mostly on price considerations, forgetting the real (social-environmental-ethical) costs of our purchases. After the Bhopal disaster (1984) many consumers began boycotting Union Carbide's products (including Eveready batteries) to express condemnation of corporate malfeasance. Cosmetics tested on animals are likewise boycotted on ethical grounds.

Even investments are now evaluated on "eco- ethics". "Is your cash being used to finance polluters, child labour or other exploitative commerce?" asks an ad. Only consumer awareness can ensure environment protection.

-Sakuntala Narasimhan