ICICI Bank raises credit card rates

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Hyderabad / Chennai, June 2

The monthly credit card statement that comes laden with lots of offers, gift coupons and summer deals at this time of the year would normally not have got more than a casual glance from Mr K. Nath. But something caught his attention this time.

There was an unobtrusive line at the bottom of the statement that conveyed that his card company ( ICICI Bank which has one third share of the market) had increased its interest rates. The statement said that the rate of interest on "extended credit and cash advances" was being increased from the current 3.15 per cent per month (45.09 pc per annum) to 3.40 per cent per month (49.36 per cent annualised) effective from June 1, 2008. That's a symptom that something is just not right with the credit card industry.

Hiking rates in an industry already known for high rates is a sure sign of troubled times. Most card companies charge around 2.7 per cent to 2.9 per cent per month or about 36 per cent per annum. Even this has been criticised as being a touch usurious.

For years now, there has been a continuous clamour for lower interest rates on credit card spending. That's something that card companies have resisted, citing high default rates thanks to a combination of poor laws, the lack of any security and the general climate of bad borrower behaviour.

Default rates across the card industry that were in the 5-7 per cent range are now double that, says Shameek Bhargava, Managing Director, Head of Cards, Asia Pacific, Deutsche Bank, India.

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