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.