HDFC Bank Leads The Way In Higher Credit Card Charges
HDFC Bank Ltd. brochures are arranged for a photograph at the company’s bank branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

HDFC Bank Leads The Way In Higher Credit Card Charges

HDFC Bank Ltd. has raised the late payment fees and interest rates on revolving balances across its credit card portfolio at a time when economic stress brought on by the Covid-19 pandemic can lead to increased defaults. The move by the country’s largest private lender may prompt others to follow.

The late payment fees for credit cards other than the Infinia range has been raised by Rs 150-350 with effect from Sept. 1, according to the statement of charges and fees available on HDFC Bank’s website.

  • Till Aug. 31, the bank was charging a flat fee of Rs 950 on late payments by customers with an overdue balance of Rs 25,000 and above.
  • Starting Sept. 1, the charges have been revised, where customers with a credit card balance between Rs 25,000 and Rs 50,000 will pay a charge of Rs 1,100 on late repayments, while those with balances above Rs 50,000 will pay Rs 1,300.

The late payment fee had been hiked on April 1 last, where for balances above Rs 25,000 the fee had been raised from Rs 750 to Rs 950.

In FY21 so far, HDFC Bank has raised late payment fees by 16-20% for small overdues (up to Rs10,000) and by 50-75% for large overdues (Rs 25,000 and above), Macquarie said.

HDFC Bank has also raised the interest rate on ‘revolver balances’ on some credit cards from 3.49% monthly (that's 41.88% annually) to 3.6% monthly (that's 43.2% annually).

An email sent to HDFC Bank on Friday to seek the rationale behind the revised charges was not answered.

According to Macquarie Research, higher late payment fees will discentivise continued delays in payments and improves recoveries for banks and non-banks issuing credit cards. Late payment fees form on average 22% of any card issuer’s total fee income and about 30% of the operating profit. On an average, 15-20% of card carrying customers are in default for up to 30 days, the research house said.

“Once moratoriums end, card issuers will resume charging late payment fees. It is easier to convince customers who have a small amount overdue to pay up by reminding them of disincentives for missing payments – large upfront penalties over and above the 3-4% monthly interest rates,” Macquarie said. “We believe other issuers are likely to follow the industry leader soon,” it said.

HDFC Bank has also seen a significant rise in customers opting for equated monthly installments on their credit card spends in the last six months, PTI reported on Tuesday. The trend is visible for cardholders according all segments, including the newly launched Millennia cards, which are aimed at younger customers, PTI quoted Angshuman Chatterjee, head (consumer credit cards and digital acquisitions) at HDFC Bank, as saying.

According to Macquarie Research, allowing customers to repay their card dues in an EMI format helps credit card businesses reduce the ultimate ‘loss given default’ for weaker customers and allows them to retain good customers.

With 1.45 crore credit cards in circulation as on June 30, HDFC Bank is the largest issuer of such cards in the country. It's followed by SBI Cards, which has a little over 1 crore cards in circulation. In June alone, HDFC Bank recorded 3.6 crore credit card transactions worth Rs 13,471 crore, according to data available with the Reserve Bank of India.

The Covid-19 pandemic, which has led to job cuts and income loss, could raise defaults across unsecured retail loan portfolios, including credit cards. Macquarie Research, however, does not see the job losses data as a serious concern for credit card companies. According to the research firm, credit cards have limited penetration in India, which aids in fewer delinquencies. Moreover, younger card holders have considerably lower balances and credit limits than people above the age of 30. These cardholders also have strong family ties, which would help in clearing dues if needed, the report said.

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