With interest rates on almost all kinds of loans going up, credit cards, too, are becoming costlier if you don’t pay dues on time.
ABN Amro Bank NV has raised its interest rate on credit cards from 3.1% to 3.5% per month. Other banks seem to be heading the same way.
Effective 1 June, the rate of interest for credit cards from ICICI Bank will be pegged initially at 3.40% per month (49.36% annually) for all blue, silver and gold cards. The rate will be 3.15% per month (45.09% annually) for platinum and titanium cards, which may increase to a maximum of 3.40% per month (49.36% annually) in case of default. K. Unnikrishnan, deputy chief executive, Indian Banks’ Association, says: “A hike in the cash-reserve ratio (CRR) by the Reserve Bank of India (RBI) may not be the reason behind banks increasing the rate of interest on credit cards. Cost of funds, cost of service and the credit risk factor play a major part.” With the latest recovery guidelines from the RBI, banks’ recovery amounts have been affected, which has put them under a lot of pressure, resulting in the hike in interest rates.
“The RBI has given banks the freedom to decide their interest rate on credit cards as of now. Therefore, there is no ceiling on the amount that they could charge. But the RBI can regulate it if the need arises,” says Unnikrishnan.
Ofcourse, not all banks may hike credit card rates. For example, industry sources say that last year, when many banks increased their rate of interest, HDFC Bank Ltd did not. This time, too, it may not as it enjoys a large customer base. That may be cold comfort for those whose banks may not be similarly blessed.