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R.Y. Narayanan

COIMBATORE, Nov. 20

THOUGH bank interest rates have been on the decline and there is excess liquidity in the market, the one segment that has remained immune to this and still has been subjected to a heavy dose of interest is the credit card segment.

Various reasons, including vulnerability to high payment default and that the card transactions are akin to unsecured credit and hence liable for higher interest rate structure, have been advanced in support of this high interest regime.

But now credit card users have some reasons to smile as a nationalised bank has taken the initiative in slashing the interest rates for its credit card members to what it claims the lowest rate in the country.

Andhra Bank has taken the initiative by slashing the interest rate on the rollover balance by its credit card members from this month by 0.75 percentage points a month - to 1.75 per cent from the 2.5 per cent per month charged earlier. In fact even the 2.5 per cent it was levying was nearly 0.5 percentage point less than what many other banks are charging for various cards.

A senior executive of the Credit Card division of Andhra Bank from Hyderabad said the bank was in the credit card business since 1981 and has the "privilege of being the first bank in the country to introduce the credit cards of Visa." The bank has slashed the service charge to 1.75 per cent per month, "which is the lowest in the industry as on date," on the balance rolled over from one month to the next. The bank was levying earlier a service charge of 2.5 per cent on all unpaid balances.

Asked for the reason in taking the initiative in reducing the interest rate for credit cardholders when other card issuers, who are bankers themselves, have shied away from it, the Andhra Bank executive explained that the bank "revised the rates in tune with the direction of interest rates in the economy."

The source said when card members carried over the balance, "some banks add interest from the date of transaction to the date of billing naming it as financial charges," which was in addition to the usual service charge on rolled-over dues. But Andhra Bank did not levy any such finance charges on its cards - be it on purchases or cash withdrawal. Moreover, while some banks collect the charges from the date of billing, Andhra Bank card members have to pay only from the due date of the bill. But the bank charged interest at 2.5 per cent per month if no payment was made by the due date, which was also lower than what the other banks collected.

The executive said Andhra Bank would be "in debit card market very soon" but did not indicate any specific time frame. The bank had at present a credit card base of about one lakh members, a major portion of it was in Andra Pradesh. It had "specific plans" to improve its card base with focus on its own client base. The bank has already announced that cards would be issued without admission charges to its home loan borrowers with limits over Rs 1 lakh.

The credit cards were also ATM-compatible in that these could be used to withdraw cash at other banks' ATMs provided they were certified for Visa and MasterCard processing. Usage in Andhra Bank's own ATMs would attract a concessional charge of two per cent till December 2002 as against three per cent charge on cash advance. The bank offered different cards like Gold Card, Classic and Standard Cards with competitive annual subscription rates. There was also a MasterCard Electronic exclusively offered for term deposit holders of the bank.

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