RBI asks banks not to levy excessive rates on credit cards

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Mumbai, July 24: : Seeking to tighten the leash on credit card issuing banks, the Reserve Bank has asked them not to charge excessive interest rates on personal loans and prescribe a ceiling rate on small advances, a move that will benefit lakhs of card users.

While issuing fresh guidelines for credit card operations, the RBI has also directed the banks not to reject credit card applications of customers without assigning reasons in writing.

The central bank also made it clear that the banks would be liable for misuse of unsolicited cards and "the persons in whose name the card has been issued cannot be held responsible for the same (misuse of credit cards by other persons)."

As regards the interest rates, the RBI said the banks "should prescribe a ceiling rate of interest, including processing and other charges, in respect of small value personal loans and loans of similar nature...the instructions would apply to credit card dues also."

Although the RBI has not specified the limit of the interest rates that can be charged by the banks issuing credit cards, it had earlier clarified that "the total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan."

In case the unsolicited card is activated and misused without the consent of the recipient, RBI said issuing bank would be required to reverse the charges and pay a penalty to which would be twice the amount of the charges reversed.