The Reserve Bank of India should set the maximum annual interest rates banks may charge their credit cardholders, a parliamentary committee is suggesting in a new report.
“Maximum interest rates to be charged may be specified so as not to allow exploitation of customers by banks,” the Standing Committee on Finance notes in its report to the Indian Parliament.
In the report, the committee rebuffs the finance ministry’s contention that banks should be free to decide their own interest rates. It also pans the central bank, calling its notice on credit card operational guidelines “inadequate.” The central bank sent the circular to banks asking them to practice diligence and prudence by avoiding questionable practices, such as issuing unsolicited cards.
“The effectiveness of such circulars in bringing down the credit card-related complaints is doubtful given the past record,” the report said.
Though the report may be an eye-opener for banks, it will be a while before anything happens because of it, Mrinalini Manral, a Mumbai-based analyst with Dassler Business Intelligence, a local payments research firm, tells PaymentsSource.
“Parliamentary panels make recommendations, not rules,” she says. “There will be deliberations in the parliament if the recommendations are made into a bill and then an executive order if it’s passed.”
Such a process can take years even if legislation is introduced, though it looks doubtful anyone will introduce a bill with the finance ministry not being in favor of capping card rates, Manral adds.
Indian financial institutions had issued 20.1 million credit cards as of end of February, down 21.2% from 25.5 million a year earlier, the central bank says. The annual interest rates they apply to their cards normally range between 24% and 42%.
