IDFC First, Axis Bank lower minimum amount due on credit cards, but others refuse to follow suit

A reason cited behind this move is to make customers' payment behaviour more lenient and frequent as they would have to pay less amount. But it is also to be noted that paying only the minimum amount due can lead to accumulation of the total outstanding amount on which interest is charged.

While IDFC First Bank and Axis Bank have reduced the minimum amount due on their credit cards, other private banks have no plans to tor their line. Senior executives from RBL Bank and Federal Bank have said that they have no plans to reduce the minimum amount dues.

“We have not done that, a couple of banks have done that. And, as of now, we have no immediate plans to do so. We feel the risk is slightly on the higher side and we will see how the industry plays out,” a senior executive of Federal Bank said. Similarly, a senior executive from RBL Bank said that they have not discussed anything on reducing the minimum due.

Effective September 1, 2024, IDFC First Bank is reducing the minimum amount due from 5 percent to 2 percent of the principal payable on its credit cards. Axis Bank did the same last November. Minimum amount due is the absolute minimum you need to repay against your monthly credit card outstanding to keep your account in good standing and avoid late payment fees / overdue charges. It is usually a percentage of the total amount due for a specific statement or billing cycle.

A reason cited behind this move is to make customers' payment behaviour more lenient and frequent as they would have to pay less amount. But it is also to be noted that paying only the minimum amount due can lead to accumulation of the total outstanding amount on which interest is charged. Hence, this could lead to higher interests charged to the customer.

Additionally, as the senior executive from Federal Bank highlighted, banks can also see higher risks due to the accumulation. In other words, if a customer defaults on paying the total outstanding, there are chances of higher pressure on the larger credit card portfolio of the bank.

Other private banks are expressing caution on their credit card portfolios. Sumanth Kathpalia, managing director and chief executive officer (MD and CEO), IndusInd Bank, said that the bank reported robust growth in credit cards but will maintain caution. "We recorded healthy credit card spends at Rs.24,019 crores growing by 19 percent YoY. Our spends market share has further improved to 5 percent as per latest available RBI data. We have been cautious in maintaining share of unsecured card and PL at 5-6 percent of the loan book," Kathpalia said at a post earnings analyst call.