The Reserve Bank of India (RBI) has asked banks not to charge excessive interest rates on personal loans and small advances, including credit cards, and prescribe a ceiling rate on such loans in a bid to curb the rampant practice among banks to jack up the rates every now and then without valid reasons.Currently, banks charge 40-49 per cent per annum interest rate if the card holders fail to make full payment on the due date or pay the minimum amount due. This rate is nearly four times that of housing loan rates — currently at 10.45-11 per cent.The RBI has not specified the limit of the interest rates that can be charged by the banks issuing credit cards, but 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.” The RBI also directed the banks not to reject credit card applications without assigning reasons in writing. Banks would be liable for misuse of unsolicited cards and “the person in whose name the card has been issued cannot be held responsible for the same”, said the RBI norms based on a study of credit card operations in the backdrop of complaints received by the RBI and banking ombudsman. Credit card issuing banks, it added, should provide illustrative examples regarding implications of not paying the full monthly bill along with the welcome kit to card holders. Insurance cover to take care of liabilities arising out of lost cards could be provided by banks “at the option of the customers,” the RBI said. While tightening the provisions for issuing insurance cover to credit card holders, the RBI asked the banks to “obtain in writing from the credit card holder the details of nominee/s for the insurance cover in respect of accidental death and disablement benefits.”The banks, the RBI stressed, “need to ensure prudence while issuing credit cards”. Responding to complaints of the certain professionals regarding non-issuance of credit, the central bank has made it obligatory on banks “to convey in writing the main reasons (to the applicants) which have led to the rejection of the credit card applications”.There should be no delay in dispatching bills and the customers should be given at least one fortnight for making payments before charging the interest rates, the central bank said. Tightening the norms•Banks should prescribe a ceiling rate of interest, including processing and other charges, in respect of small value personal loans and loans, including credit card dues • Banks are required to supply the reason for rejection of credit card applications• Banks advised against sending statements after a gap of a few years and demanding payments and the same has to be seen as a grossly unfair act on the part of the bank • A request for closure of the credit card has to be honoured immediately by the bank
