No more exorbitant charges on credit cards: RBI

In May, RBI issued a circular stating that interest rates were deregulated and credit cards and personal loans, falling in the non-priority segment, could charge a higher interest rate. However, the apex bank has now noted that "rates of interest beyond a certain level may be seen to be usurious and can neither be sustainable nor be conforming to normal banking practices."

"The total cost to the borrowers, including interest and all other charges levied on a loan, should be justified having regard to the total cost incurred by a bank in extending the loan and the extent of return that could be reasonably expected from the transaction," it said.

Currently, various charges are levied by banks under different categories such as dues, late fees, cash advance fees, etc. and the charges vary from bank to bank and range from 30 percent to a whopping 51 percent.

For instance, banks earn considerable sum by charging credit card holders who avail of cash advance service anything between 26 percent to 46 percent interest on the amount withdrawn and unsuspecting credit card holders continue to be charged this hefty interest as this transaction is settled only after all other credit card purchases are settled.

Banks have often justified higher interest rate on credit card dues on the grounds that they foresee higher risk of default due to the insecure nature of transactions. The delinquency rate in India is 6 to 8 percent, bankers said.