ICICI bank reduces interest free credit periods on credit cards

ICICI Bank the largest credit card issuer has recently done changes in the interest-free credit periods. Such a move taken by the banks is going to prove a setback for the credit card holders regarding the interest-free credit periods.

The bank has reduced the interest-free credit period on its credit cards to a maximum of 48 days, earlier it was 52. After this change now the card holders will have to pay up within 18 days on receiving the monthly statement rather than 22 days earlier. Nowadays a very special rewards point are being offered with icici credit card so make a check to them and choose the best one.

Sachin Khandelwal, head of cards group at ICICI Bank said, “We decided to reduce the cycle in May 2008. It was communicated to the customers in June, so it has been effective from the July cycle. There is no particular reason for reducing it. The market has a cycle of 46-52 days and we have decided to keep it at 48 days.”

However other bankers are not persuaded with this move of ICICI Bank. The bankers are of a view that ICICI bank might have done this without a reason. Going by them, the rising cost of funds could the reason behind this move.

Earlier the Reserve Bank of India tightened the liquidity measures which had resulted in rise in the cost of funds of banks in the recent months. In turn this has reduced their ability to offer bigger concessions such as free credit periods on cards. More over banks having low current account and savings account deposits which contribute for lower-cost funds compared to other sources have been hit harder.

Subrat Pani, business head - cards, Kotak Mahindra Bank, conceded, “If the cost of funds increases, banks might look at revising the credit cycle.”

However Kotak Mahindra Bank, entered in the credit card business in mid-April this year, has already kept the free credit period to a maximum of 48 days from the beginning. “The credit cycle is different for each bank. We have decided to keep it at 48 days and we do not plan to change it,” said Pani.

DNA Money reporter contacted other major credit card issuers whether they are also planning to lower the interest-free period.

HSBC Bank sources informed that they will not change the current credit cycle, it will remain at 22-52 days. But, the bank refused to comment on whether it has any future plans of reducing it.

Other banks foreign banks such as Citibank and Standard Chartered Bank also informed that they have no plans to change the credit cycle in recent times.

A Citibank spokesperson told DNA Money, “The interest-free or grace period for all Citibank Cards ranges from 17 to 55 days. This is stated in our customer communication and we have no near-term plans to change the disclosure.”

However if we look on the other side, some banks have raised the interest rates on their credit cards. Earlier banks charged an interest of 2.95% per month, or 41.75% annually, but now they will be charging as much as 49-50% annually on some cards.

In some cases, the interest charges vary, i.e. it depends on the last bill payment. “Customers who consistently maintain a good payment record are eligible for rates as low as 1.49% per month. However, customers who miss their payments repeatedly can see their rates rise to a maximum of 3.5% a month,” said the Citibank spokesperson.

Hence the card holders should better start repaying their debts. This is the only best option.

ICICI bank Airtel join hands to provide M-Cheque facility

ICICI bank country’s largest private lender and Airtel are planning to launch M-cheque cashless transaction facility for bank customers.

There are rumors that Tata is already working on this type of project called Tata IndiPay. Now Airtel and ICICI bank will be joining hands to allow the bank customers to use their mobile phones for conducting transactions.

The two companies in joint venture will be offering a facility called M-Cheque which will enable the facility of cashless transactions. Consumers will be required to have an Airtel connection with a SIM card with 32K capacity.

For this project ICICI Bank is taking services from Mumbai-based IT firm Littleworld to develop the technology. In this process a merchant will be required to send an SMS to Littleworld, which will have the customer’s mobile database. After the getting authorization from the ICICI bank, an SMS will ask for the customers’ authorization. Also must check out icici housing loan to make your dreams come true to buy a fully furnished house.

After getting authorization, from both the bank and the customer the transaction will be completed. The merchant would receive the payments though the bank the next day. ICICI Bank general manager B Madhivanan said on this new initiative: “We have launched the pilot project in some 100 outlets and for customers in Delhi and Mumbai. The project will be ready in some month’s time. Based on the results of the pilot project a proper rollout will be initiated”.

Two-wheeler makers to get into finance biz.

After ICICI bank decision not to provide two-wheeler loan facility through its dealer network as part of its efforts to cut down expenses, the two-wheelers manufacturers are gearing up to enter the finance business by either expanding their non-banking finance arms or through tie-ups with local financers.

However the ICICI bank said that it will be providing two wheeler loans at its branches.

Two of India’s largest two-wheeler manufacturers TVS Motor and Bajaj Auto, have almost finalized the alternate arrangements to finance their businesses. “This would mean better service for customers,” said S Sridhar, CEO, two-wheelers, Bajaj Auto. “However, we would ensure that the customers’ credit history is properly scrutinized”.

However both the companies have expanded their domestic finance arms, TVS is trying for outsourcing finance to local financers to fill in the gaps at its showrooms across the country. The company is having talks with up to six local financers in various regions as well its own finance arm, TVS Finance.

HS Goindi, head of sales, service and marketing, TVS Motor pointed out, “The question is not of credit, it is of the need for two-wheelers in India, and we are working out a strategy to fill the need”. “Since local financers have better local knowledge, they will be able to figure out a way to ensure credit quality.”

Bajaj Auto Finance Ltd, the finance arm of the Bajaj Group, has decided to enter the two-wheeler finance market.

“Mercedes Benz, Audi are among some companies abroad who have been very successful in finance businesses. We feel this is an opportunity,” said Sridhar.

Sridhar informed BAFL is on the expansion mode since last six months.

Companies do agree that ICICI Bank’s pullout is going to hurt two-wheeler makers, they also said that the quality of credit is not necessarily a killer. “There is a huge need for two-wheelers in the Indian market, and we have seen growth at TVS in the last two months,” said Goindi.