RBI Fixes Minimum Amount Due Formula for All Cards: Here are the New Credit Card Rules

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RBI Fixes Minimum Amount Due Formula for All Cards: Here are the New Credit Card Rules

Off recently, the Reserve Bank of India tweaked rules about credit cards. The Central Bank ordered banks and credit card issuers to calculate the minimum due amount on credit card bills such that it would not result in negative amortisation. 

As per these new rules, banks shall not capitalise for charging or compounding interest on unpaid taxes or charges. RBI put this rule into play from 1 October 2022. Thus, if you want to obtain a credit card online or offline, knowing all about these rules is crucial. 

Read on to find more details pertaining to new credit card rules.

About the New Credit Card Rules

The RBI stated that the terms and conditions for credit card payment dues, including the minimum amount due, shall be such that it ensures no negative amortisation.

Suppose you only pay the minimum amount due on the credit card. In that case, the card issuer will charge interest only on the remaining amount and all new transactions until you pay the previous balance fully.

Let us assume that the due date of your credit card bill is the 10th day of the month. On the 1st day of a month, you spend Rs.1 Lakh. Your due day of payment is the 25th of the month, and you pay off the minimum amount due, i.e., Rs.5,000. Now, the bank will calculate interest on the outstanding amount of Rs.95,000 for the coming 40 days. This is the time from the spending date to the date of the second bill.

Thus, if you only consider paying the minimum balance due, your bank will calculate interest on the interest every month. Now, if your outstanding amount is massive, it is possible that the interest you generate over the months would be higher than the typical minimum amount. In such a situation, the payable interest amount will accrue on your card and crush the outstanding amount. As a result, you would end up paying interest on interest, without any reduction in the outstanding balance. This is called negative amortisation.

Moreover, if you only pay the minimum due amount on your credit card every month, your outstanding amount will keep rising. These new rules were set by RBI to look into this matter.

According to this rule, whether you obtain a credit card online or offline, the card issuer can charge a high minimum balance. This will ensure that the minimum due amount covers the accrued interest and contributes to the principal as well.

It would help if you are aware of the charges on different banks’ credit cards and for specific purposes, such as the Indian Oil Axis Bank credit card.

A Few Other Credit Card Changes by the RBI

The RBI has also laid a few other rules on interest rates and charges on credit cards. Find them below:

1. Suspension of interest-free period explanation

Credit cards usually offer an interest-free period of 25 to 45 days. In simple terms, if you take credit and repay it within this period, you will not have to pay any interest. However, whenever there is an outstanding credit balance, banks and card issuers suspend this interest-free period.

The RBI said that the most important terms and conditions should mention the suspension of the interest-free period if the balance from the previous month is due.

2. Penal interest and other costs to be charged on the outstanding amount

As per RBI, any penal interest or other related charges should be charged on the outstanding amount, after the due date and not on the overall amount. Moreover, credit card issuers also need to report a particular account as past due to the CICs (Credit Information Companies). Banks and credit card issuers should levy penal charges when an account is past due for more than three working days.

3. Interest rate transparency

The RBI has directed all banks and card issuers to prescribe an interest rate ceiling. This should fall in line with other unsecured loans, inclusive of processing fees and other charges. However, at times, the interest rate might vary due to payment default. If that is the case, the bank should focus on complete transparency for the reason behind levying differential interest rates.

It is crucial to keep these pointers in mind when obtaining a credit card online or offline. Complete knowledge of new credit card rules will help you make an informed decision. 

You can consider knowing the different bank’s card credit terms and conditions from websites like Bajaj MARKETS. This is a diversified platform featuring different credit cards offered by leading banks and card issuers.

Furthermore, while staying updated is crucial, it is equally important for individuals to purchase a credit card that meets their requirements. With the availability of so many different types of credit cards, the process to make the right choice might become overwhelming. In such situations, one should consider visiting a diversified marketplace like Bajaj MARKETS. This is an online platform featuring a host of credit card options from leading banks. 

The RBI makes specific changes to the country’s financial space from time to time. Therefore, it is crucial that individuals remain informed regarding the new updates to make conscious choices while getting credit cards online.


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