ICICI Bank slashes credit card rates to all-time low

ICICI Bank has taken the rate war to the enemy camp by slashing interest rates by 100 basis points in the credit card segment, and bringing it to an industry all-time low of 0.99 per cent per month.

Standard Chartered Bank had yesterday triggered a price war in the credit card market when it launched "Manhattan", thereby bringing down interest rates on revolving credit to 1.99 per cent. The Indian credit card industry rate is among the highest in the world at 2.65-2.95 per cent month.

Christened ICICI Bank Easy Deposit Card, the bank is offering the product to its fixed deposit customers, wherein there is no annual fee for life. Bank customers can avail of credit to the extent of the amount lying in the fixed deposit with the bank.

"This product opens up a new category of customers, who otherwise may not have been eligible for a credit card," said V Vaidyanathan, senior general manager and head-retail products, ICICI Bank.

The new product does not call for any income documents on application. Contrary to the concept of credit cards "" which essentially is unsecured credit "" ICICI Bank offers the product against the security of the fixed deposit.

Citibank today offers rates from 2.95 per cent to as low as 1.5 per cent monthly. "About 20 per cent of our 24 lakh customers enjoy a low rate of 1.5 per cent based on their utilisation of the credit card, behaviour pattern and credit risk," said T R Ramachandran, business manager (cards), Citibank.

The interest rate enjoyed by customers changes every 90 days. ICICI Bank also offers special rates to its preferred customers as low as 0.99 per cent, said Vaidyanathan. ICICI Bank today has the largest credit card base of over 25 lakh, followed by Citibank's 24 lakh, and Standard Chartered's 16 lakh.

While the credit card product is the only financial services product not to have seen a fall in interest rate, banks keen to keep their "good" customers are offering discretionary rates. These rates are based on their credit history and risk profile.

The reason for interest rates to be relatively higher for credit card stems from the high default rate of seven to eight per cent against 0.5 per cent in the home loan segment, which has seen the maximum fall in interest rates, said Ramachandran.

With the introduction of ICICI Bank's new product, the bank customer can earn an interest of at least 5.25 per cent on the fixed deposit, pay less than 12 per cent interest on his revolving credit, and in the bargain earn points for every rupee spent.