The Supreme Court on Friday overturned a 2008 decision by the National Consumer Disputes Redressal Commission (NCDRC) that restricted banks from charging more than 30% annual interest on overdue credit card payments. The apex court’s ruling grants banks the freedom to set their interest rates within existing regulatory frameworks.
Supreme Court Ruling
A bench comprising Justices Bela M. Trivedi and Satish Chandra Sharma delivered the verdict, setting aside the NCDRC’s ruling that labeled high-interest rates as an unfair trade practice. The judgment followed appeals from several banks, including Standard Chartered Bank, Citibank, and HSBC, challenging the NCDRC-imposed cap.
The court ruled, “The judgment of the NCDRC is set aside and appeals are allowed.” A detailed copy of the judgment was awaited at the time of reporting.
The NCDRC order had been stayed by the Supreme Court since February 3, 2009.
Background of the Case
The dispute originated from a petition filed by Awaz Foundation, an NGO, questioning whether credit card interest rates between 36% and 49% annually constituted exploitative practices.
In its 2008 decision, the NCDRC argued that such rates disproportionately impacted financially distressed consumers and criticized the Reserve Bank of India (RBI) for not defining “usurious” interest rates. It accused banks of inflating dues through compounding practices and compared India’s high rates to significantly lower ones in developed economies like the U.S. (9.99%–17.99%).
RBI’s Position
The RBI has refrained from imposing specific caps on interest rates, leaving such decisions to individual banks under the Banking Regulation Act, 1949. While the central bank advises against “excessive” rates, it delegates the responsibility of setting interest rates to banks’ boards of directors.
Banks’ Arguments
Banks contended that capping interest rates would:
- Undermine profitability.
- Reduce credit availability.
- Fail to account for the high risks and costs associated with credit card operations, including defaults and service-related expenses.
They also argued that the NCDRC lacked jurisdiction to regulate interest rates, which fall under RBI oversight. Senior advocates Abhishek Manu Singhvi and Dhruv Mehta represented some of the banks.
Supreme Court’s Observations
The Supreme Court supported the banks’ position, emphasizing that:
- Credit card interest rates are determined by market dynamics and subject to RBI regulation, not consumer forums.
- Financial institutions need flexibility to mitigate risks associated with credit card defaults, which justify higher interest rates.
Current Interest Rates
Credit card companies in India presently charge annual interest rates ranging between 22% and 49%.
The ruling underscores the complexities of regulating financial products and shifts the responsibility for overseeing interest rates to the RBI while reinforcing the importance of market-driven mechanisms.
