Though banks have cut rates on all loans over the past nine months, one exception stands out. Credit cards still carry high interest rates.
You continue to pay about 3.5 per cent per month on your credit card debt. Or about 51 per cent per annum.
Credit card users are yet to see a reversal in the monthly rate hike of upto 50 basis points (or 0.5 percentage points) that banks had initiated during the first six months of 2008.
In contrast, home loan rates have fallen from over 13 per cent to under 10 per cent. Interest on auto loans is down from around 14 per cent to 10 per cent; and personal loan rates have been cut from 20 per cent to around 15 per cent.
Most of the banks HT contacted chose not to respond. Those who did, did so on condition of anonymity.
While a leading Indian bank said a rate cut is not likely, a foreign bank justified the high rate on the basis of high cost of credit resulting from higher defaults.
“The cost of credit has moved up and has offset any benefit on account of cost of funds going down,” said a foreign bank official. “Default rates, higher than a year ago, have further dampened the situation.”
When some customers default on their loans, the loss is accumulated and recovered from other customers in the form of higher interest rates.
While banks have enough reasons to keep interest rates high, the operative number for you is 51 per cent — that’s five times higher than what you pay on your home loan.