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Photo: AP
Photo: AP

Plastic price play

The cost of credit has fallen almost everywhere else. Price competition was needed in this arena, too. The dynamism it spells will do both card users and issuers a favour

Plastic is more bendable than it seemed. IDFC First Bank looks poised to bend the Indian credit card market with the lure of an annual interest rate as low as 9% on outstanding dues. Given that this is less than a quarter of what other card issuers charge, the very appeal of it could shake up the market for the better. Such a low rate, though, will not be available to all. It will apply only to the card bills of clients with clean repayment records, with progressively rising rates for those with relatively weak credit profiles.

Credit card issuers have gotten away for too long charging rates that can only be described as usurious. Some charge up to 40% per annum, regardless of how diligently their customers pay their bills. This practice was once justified on the argument that such loans were collateral-free and therefore qualified as high-risk assets. Over time, however, technology enabled the sorting of clients by creditworthiness. Today, it’s obvious that good borrowers shouldn’t have to pay for the delinquency of others. The cost of credit has fallen almost everywhere else. Price competition was needed in this arena, too. The dynamism it spells will do both card users and issuers a favour.

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