Challenging the consumer court’s judgement in the Supreme Court, foreign lenders said capping of interest rates on credit card payment was contrary to RBI policy that stated that banks were free to determine rates of interest on non-priority-sector personal loans without reference to benchmark prime lending rate and regardless of the size of loan.

The foreign banks which have moved the apex court are Citibank NA, Hongkong Shanghai Banking Corp, Standard Chartered Bank and American Express Bank. The Indian Banks Association, in an intervention application, also said the rate of interest charged by banks was not subject to scrutiny of courts.

National Consumer Disputes Redressal Commission has restrained these banks from charging an interest rate of more than 30 per cent a year from credit card holders who fail to make full payment on the due date.

While admitting the petition, a bench headed by Justice B N Agrawal issued notice on the interim application seeking stay on the order of the consumer court. The bench also allowed intervention application filed by the Indian Banks Association .

According to the petitioners, the Reserve Bank in its circular on July 23, 2008 had said that banks could prescribe their respective ceiling rate of interest in respect of small-value personal loans and this would apply to credit card dues as well.

According to the foreign banks, the commission had failed to appreciate that the market in India was still at a developing stage and the risk of default was relatively high. “An emerging market like India also has a high cost of acquisition and a high cost of servicing an account as compared with other mature markets,” it said.

“The commission has no jurisdiction to hold that the charging by banks of interest at monthly rates was an unfair trade practice given that credit card dues are unsecured and of indeterminate tenure, and the levying of interest at monthly rates is in any event harmonious with the monthly billing and payment cycles,” Citibank said.

WHAT DO THEY SAY?

•Capping of interest rates on credit card payment is contrary to RBI policy that states that banks are free to determine rates of interest on non-priority sector personal loans

• An emerging market like India also has a high cost of acquisition and a high cost of servicing an account as compared with other mature markets