Mumbai: India’s banks are again quietly raising interest rates on credit card loans. And sticking it in the fine print.
And, this time, instead of going for across-the-board hike, banks are starting to discriminate, using credit history and other segmentation to push some customers into higher rate bands.
For instance, ICICI Bank Ltd, India’s largest private sector lender and the biggest credit card issuer with a card base of around 8.5 million, is now charging many of its customers 3.4%, up from 3.14% just weeks ago. It has also reduced the maximum credit-free period from 52 days to 48 days. Credit-free period is the time given by a bank to a customer to make payments on credit card purchases without having to pay any interest.
The hike in interest rates across banks examined by Mint is 25-30 basis points. One basis point is one-hundredth of a percentage point. Since interest rate on credit cards is charged monthly, a 30 basis points raise translates into a 3.6 percentage points hike in annual interest rates.
An ICICI Bank official said the bank’s interest rate band for credit cards is 1.5-3.4%.
Foreign banks, such as Citibank NA and Standard Chartered Bank, have also started charging their credit customers higher rates within an interest rate band. The interest band of Citibank is 1.49-3.5% and that of Standard Chartered 2.49-3.4%.
HDFC Bank Ltd, which has roughly half of ICICI Bank’s credit card base, is raising its interest rate band from 2.75-2.95% to 3.05-3.25% from 1 September.
Parag Rao, head of product portfolio and service delivery credit cards at HDFC Bank, said: “The increase in interest rates is in line with market. We have not tinkered with the credit-free period as this could have an impact on the repayment of customers.” He also claimed that HDFC Bank’s rates were lower than the market and it has “corrected the disparity”.
State Bank of India (SBI), which runs a credit card joint venture with GE Capital Services, the largest issuer of private label credit cards in the world, said it hasn’t yet taken a decision on interest rates even as Diwakar Gupta, chief executive of SBI Cards and Payment Services Pvt. Ltd, noted that “credit is getting costlier”.
According to Gupta, “the (interest) rates will either remain stable, or move up from here”. SBI Cards’ current interest rate band is 2.6-3.1%.
A rise in interest rates on credit cards does not affect all cardholders as only those customers who roll over some portion of their credit need to pay interest on amounts due. Such customers are believed to make up around 40% of the almost 28 million credit card users in India.