At a time when banks are slashing home loan and other lending rates, they are quietly hiking the interest rates on credit card out standings. Though the Reserve Bank of India (RBI) has taken a number of steps to bring down interest rates and boost demand in the economy, banks have not only refused to slash credit card rates but many of them have even jacked up the rates in the last six months due to rising defaults.
According to banking sources, as credit card customers have been adding substantially to the non-performing assets (NPAs) of banks, they have decided to go slow on customer acquisition and rate reduction. Since October 2008 banks have raised interest rates on credit cards, some by over 4 per cent per annum. The interest charges of leading card issuer SBI Cards, a joint venture be tween the State Bank of India and GE Money, have gone up to 3.35 per cent interest per month, or 40.2 per cent per annum, on roll-over credit.
In October 2008, it used to charge 3.10 per cent per month, or 37.8 per cent per annum, as finance charges. Standard Chartered Bank has hiked the interest rate to 3.49 per cent per month, or 41.88 per cent per annum, this month as against 3.40 per cent per month, or 40.80 per cent per annum earlier.
Another large credit card issuer, Citibank too raised the rates since October last year and presently charges 3.15 per cent to 3.5 per cent per month (37.8-42 per cent per annum) from around 3.10 per cent as finance charges.
Source: The Indian Express
Banks quietly hike credit card interest rates
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By nargis, Section Banking & RBI
Posted on Sat Apr 04, 2009 at 03:27:32 AM EST
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Pricing is also offered at 2.75 per cent and 3.40 per cent for customers with lower behavior scores, depending on their building a good credit history of minimum 6 months," said an ICICI Bank official. On the other hand, the RBI reduced the repo rate five times from 9.0 per cent to 5 per cent, reduced the reverse repo rate thrice from 6.0 per cent to 3.5 per cent, the cash reserve ratio (CRR) four times from 9.0 per cent to 5.0 per cent of net demand and time liabilities (deposits) and the statutory liquidity ratio (SLR) from 25.0 per cent to 24.0 per cent of deposits in the last seven months.
Home loan rates of SBI and many PSU banks had fallen by up to 350 basis points in the last six months. As per the RBI figures, credit card outstandings have gone up by 69.6 per cent, or Rs 12,053 crore, to Rs 29,359 crore up to December 19, 2008 on a year-onyear basis. This is a quantum jump when compared to the rise in card outstandings of Rs 5,393 crore, or 45.3 per cent, in the previous year ended December 21, 2007.
A section of bankers agree that India needs more comprehensive rules to govern credit cards. The US is putting in place a legislation to impose sweeping new restrictions on the credit-card industry. The new US legislation would restrict card companies' ability to raise rates on existing customers and ban certain controversial practices, such as applying payments to the portion of a borrower's balance with the lowest interest rate. It would also prohibit issuers from charging interest on parts of the balance that were already paid on time, a practice known as double-cycle billing.
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