RBI Says
interest on card balance should not be levied till next bill
Credit
cards carry one of the highest interest rates
between 35% and 47% a year.
For select
customers, certain banks charge credit card interest at a little lower rate of
24%.
You might
get more time to repay your credit card dues without having to pay any interest
or ./ pesky fees.
The Reserve Bank of
India (RBI) has asked banks to make credit card charges “reasonable” and
directed them not to levy interest on card dues till the next bill date even if
payment is not made before the due date, bankers familiar with the development
told Business Standard.
This is the first
time the regulator has addressed the issue of credit card charges and this
follows RBI’s recent instructions on waiver of pre-payment charges on floating
- rate consumer loans & removal of penalty for non-maintenance of minimum
balance in savings deposit accounts.
“So, far, cardholders
had to pay interest on credit card dues at expiry of the due date. This (new
order) will offer them a few more interest - free days. We are revising our
practice accordingly,” the chief executive of a large credit card issuer said,
asking not to be named.
For instance, suppose
a customer has to repay his card dues on the fifth of every month, while his
bill is generated on the 10 of the month. So far, if the customer did not repay
his dues by the fifth day of the month, he had to pay interest. With the new
instruction, the customer can pay his dues on the 10th day without an
additional charge.
Bankers, however,
clarified that if the customer failed to clear his / her dues even after the
next billing date, he would have to pay interest from the date of purchase.
“The idea is to make
it more convenient for customers by granting a few additional days. But, if
they continue to delay their repayment, they will need to pay interest,” said
another banker familiar with the development.
For now, most banks
& credit card companies appear reluctant to reduce credit card charges.
Credit cards carry
one of the highest interest rates
between 35% and 47% a year. For
select customers, certain banks charge credit card interest at a little lower
rate of 24%.
“One should bear in
mind that credit card is one of the riskiest forms of lending where delinquency
rates are relatively high. Also, it is not an amortising product in the sense
that the principal amount does not decline over time. There are risks of fraud
for which banks are often held liable. It is an extremely capital-intensive
product and a lot of investment is needed in technology and other areas. So,
the pricing is higher than other products,” said a banker in charge of retail
lending at a private bank. He ruled out any plan to cut credit card charges in
the near term.
