The Reserve Bank of India (RBI) has asked banks to explain the reasons for the high charges levied on basic services, including credit cards. | |
| Significantly, the RBI has included credit cards in the list of basic banking services. Earlier, the RBI's internal working group had not included credit cards under its definition of basic banking services. |
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| Basic banking services comprise cheque books, pass books, ATM cards, debit cards, stop payment instructions, account closures, signature verification, demand drafts and cancellation, payment through electronic clearing services and issue of no dues certificates. |
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| The banking regulator has sought an explanation on the price and cost analysis of basic banking products. Banks, through the Indian Banks' Association (IBA), had recently conveyed their strong opposition to the central bank wanting them to link charges to costs and also expressed their inability to provide any cost-price analysis. However, the RBI was not convinced with their reply and has since sought details from banks. |
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| The RBI's insistence on banks providing it the requisite details follows an increasing number of complaints from customers with regard to high charges on credit cards and personal loans. |
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| "Pricing of services is a function of cost. We have asked banks to give us a break-up of the cost incurred by them to provide various banking services, including credit cards," said an RBI official. |
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| The IBA, on behalf of the bankers, has said, "This granulation of cost for various services is not possible as banks do not capture such information." |
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| Additionally, banks subsidise various banking services and charge higher interest rates and fees where the risk is high." |
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| There was discontent among customers over the high interest rates and fees charged by banks on various products, in particular credit cards and personal loans, he added. |
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| In the past, the RBI had asked bank boards to formulate an appropriate ceiling on the interest rate, including processing and other charges on such loans, which was to be suitably publicised. |
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| "We are not trying to dictate interest rates. However, we have to ensure that they are reasonable," added the official. |
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| "In the absence of a strong credit bureau, banks have to levy higher interest rates on select loans and advances like credit cards and personal loans. The cases of default in these loan segments are high, hence the interest rate charged is higher. It is not possible to give a break-up of cost for each product as banks adopt a bundled product approach," said a senior banker. |
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| The default rate on credit cards has declined marginally to 9.94 per cent in 2002 from 11.55 per cent in 2006, but in absolute terms the total delinquencies quadrupled to $1.70 billion from $426 million. |
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