The Hindu Business Line : Interest rates on credit cards set to go up

While some banks have already decided on the increase in interest rates, many others are in the process of doing so, thanks to the macro economic scenario.

Default rates on credit cards have also been going up (rumoured to be between 10 and 15 per cent).

The RBI Deputy Governor, V. Leeladhar, recently expressed grave concern about the fast rising default rates in credit cards and chastised card issuers to be more careful about whom they issue cards to.

Yet, the proximate cause for raising rates on cards is actually the higher cost of funds.

Rising cost of funds

“Till now we are charging the lowest interest in the industry. But due to over all increase in the cost of funds, we are in the process of increasing the interest on our cards effective from September 1,” Mr Parag Rao, Head (Product, Portfolio & Service Delivery, Credit Cards), HDFC Bank, told Business Line over phone from Mumbai.

At present, HDFC Bank’s interest rate on cards is between 2.75 per cent to 2.95 per cent per month

“This will go up to 3.05 per cent to 3.25 per cent. As the industry rates are between 3.1 per cent and 3.4 per cent, our revised rates will be at the lower-end,” he said.

According to sources, other major banks including ICICI are also likely to hike rates. ``The exercise is on and hike in interest on credit cards is likely soon,” said a source in ICICI Bank who did not want to be identified.

Earlier in June, ICICI Bank had increased interest rate from 3.15 per cent per month to 3.40 per cent per month.

When asked on the possible hike, HSBC Bank declined to comment on the issue. It currently charges 3.1 per cent to 3.2 per cent per month on its cards.

Apart from causing additional burden on a card-holder, the high interest rates are bound to impact the growth in credit cards.

“The growth in the absolute number of credit cards issued may see a dip,” said a HSBC official. ``We do see a marginal impact on the credit cards growth,” Mr Rao observed.