Banks to increase interest rates on credit cards

Before swiping your credit card be careful as the interest rates are likely to increase. Similarly to home loans or auto loans the banks are likely to hike interest rates on credit cards.

Although some banks have already taken decision on the increase in interest rates, other banks are in the process will be following soon. The present macro economic scenario is responsible for the hike.

However default rates on credit cards is also in rise (rumored to be between 10 and 15 per cent).

Recently the RBI Deputy Governor, V. Leeladhar, had expressed his concern about the fast rising default rates in credit cards in india and reprimand card issuers to be more careful before issuing the card.

However, the immediate cause for raising rates on cards is actually the higher cost of funds.

Mr Parag Rao, Head (Product, Portfolio & Service Delivery, Credit Cards), HDFC Bank, told in a telephonic talk from Mumbai told Business Line, “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,”

Currently, HDFC Bank’s is charging between 2.75 per cent to 2.95 per cent per month interest rate on cards.

He added, “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”.

As per sources, other big 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, ICICI Bank in June had increased interest rate from 3.15 per cent per month to 3.40 per cent per month.

When enquired from HSBC Bank about any possibility of hike, HSBC Bank declined to comment on the issue. Currently it is charging 3.1 per cent to 3.2 per cent per month on its cards.

Besides adding up burden on a card holder the high interest rates will also be impacting the growth of 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.