AWAZ AHMEDABAD Vs. RESERVE BANK OF INDIA MUMBAI

JUDGEMENT

(1.) IN the aforesaid complaint and revision petition, the questions, which require consideration are:

(2.) IN our view, prima facie, charging of interest at rates ranging from 36% to 49% p.a. is exorbitant and amounts to exploitation of the borrowers / debtors and is usurious. Whether the RBI can issue any directions?

(3.) THE interest due is calculated only on unpaid balances. A customer who pays in full is not charged any interest. A credit card customer who undertakes transactions on his credit in a month and pays the entire amount being the value of those transaction within the payment due date in the succeeding month, pays no interest and no late payment charges, and has between 18 and 52 days to make the payment. Determining factors for the setting of an interest rate Banks seek to obtain a reasonable and fair return for the credit provided by them to credit card customers. The costs that a bank takes into account in providing such credit card are, briefly, the following: Bank"s costs of funds Each credit card issuing bank"s costs of funds is different from that of another bank and is dependent on a number of factors, including the capital and the number of branches it has (and, therefore, correspondingly the number and size of the deposits that it can garner for its business of lending). A substantial portion of credit card customers do avail of the interest-free credit period to the maximum limit. Cost to the bank of non-performing loans (i.e., bad debts on account of non-payment of dues). Credit card issuing banks have credit card customers who default on their dues, and have to factor in the cost of write offs and losses incurred on account of delinquency. The bank"s account acquisition costs and costs related to the maintenance, and the bank"s costs of marketing promotions, offers and rewards.