The current liquidity crunch has also taken a toll on the credit card segment. Most credit card issuers are now charging higher interest rates as well as reducing the credit limit of their customers.
Every bank charges an interest rate within a specific band on the credit it extends to its customers. The current crisis has forced many companies to change these bands that will result into higher interest rates.
In fact the past two months have witnessed an increase in the interest rate slabs of major players like State Bank of India and HDFC Bank.
SBI, the largest credit card issuer in the country has revised the upper limit of interest rate slab from 3.1% to 3.35% which has come into effective from this month. The company has also decided to raise the cash advance fee from next month.
Credit card major HDFC has also revised its slab ceiling from 2.95% to 3.25% during the last month.
Similarly other card companies which have not yet resorted to an increase in their interest rates will either start charging a higher rate within the current slabs or decrease the credit limit offered by them. This change would mean that if a person is in the interest rate slab of 3.0-3.5% on a monthly basis and is charged 3% will now be seen at the upper limit of the slab and charged 3.5%. This will amount to an annual interest rate of 42%.
However the companies also fear the repercussions of further hike in interest rates. They believe that a fresh round of increase in interest rates will put their market share at a risk.
A senior official of a credit card company said, "Except SBI and HDFC, most credit card companies have already revised their interest rates at least twice within six months. Now, all of them will shy from increasing their interest rates again. However, in case of customers who're paying on revolving credit basis and have missed their payments have been pushed to new slabs or in the existing slab, their rates have been increased. Also, the credit limits of many customers have been slashed."
American Express which is already charging an interest rate of around 3.5% is not planning to raise its interest rates or reduce the credit limits. Amit Dutta, vice-president (marketing) of American Express said, "Our revenues are based on high-spending card members who enjoy big credit limits. We're not going to do anything that affects our customer base."
The current interest rate slab of ICICI and Citibank are in the range of 1.5-3.75% and 1.5-3.5% respectively. Similarly, the current slab for Standard Chartered is between 2.49% and 3.40% per month.