As expected from ICICI Bank, I found that they are not following a particular RBI guideline. Recently, I was looking at my ICICI Bank Emeralde Private Metal Credit Card statement and noticed a problem.
The problem:
The RBI directed all credit card issuers in India to follow this guideline:
"v. ... Late payment charges and other related charges shall be levied only on the outstanding amount after the due date, and not on the total amount due.
vi. Interest shall be levied only on the outstanding amount, adjusted for payments/refunds/reversed transactions."
*Check Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (Updated as on March 07, 2024) Point No 9. (b). v. and vi.
This simply means: If you make a partial payment on your credit card bill before the due date, the bank can only charge interest and late fees on the remaining amount, not on the basis of the original total amount due.
Example:
Sujit has an ICICI Bank credit card with a bill of Rs. 50,000 due on May 28, 2024. He pays Rs. 30,000 on May 25, 2024. ICICI Bank can only charge late fees and interest on the remaining Rs. 20,000 after the due date plus a 3-day grace period, not on the full Rs. 50,000.
Now, when I check my ICICI Bank Emeralde Private Metal Card statement, I found that they have written:
"Interest will be charged if the Total Amount Due (TAD) is not paid by the payment due date. Interest will be charged on the Total Amount Due and on all new transactions except fees/charges and GST/taxes (from the transaction date) until such time as the previous outstanding amounts are paid in full. In addition, interest will be levied on all cash advances from the date of the transaction until the date of payment."
This indicates that ICICI Bank is not adhering to the RBI guidelines.
Now, I was like, wow! ICICI Bank is still using old text and not bothering to change it even after the RBI instructed all banks to do so. I know... ICICI Bank only changes the MITC and other terms after someone files a complaint against them. 😄
Jokes apart, I decided to check other banks' statements to compare their practices. So, I checked my HDFC Infinia, IDFC First Wealth, Yes Private, Axis Atlas, SBI Cashback, and a few other card statements and found that they are following the RBI guidelines.
For example, I'm attaching a screenshot of the Yes Private credit card statement:
They have clearly mentioned that interest will be charged on the remaining due amount (outstanding balance) and not on the total due amount.
Now, whom should we blame here? ICICI Bank for not following the RBI guidelines, or the RBI for not carefully checking if all the banks are following their guidelines?
Post your opinion here.
Update (On 4th June, 2024):
Today, two ICICI Bank credit card product managers called me to discuss the issue I highlighted on TFC and Twitter on 28th May, 2024, regarding interest charges on the total amount due.
According to them, ICICI Bank is fully complying with the latest RBI guidelines. They pointed out that as per point 9.b.iii of the "Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (Updated as on March 07, 2024)," ".... The MITC shall specifically explain that the interest-free credit period is suspended if any balance of the previous month's bill is outstanding." This is interlinked with the point I highlighted, 9.b.vi: "Interest shall be levied only on the outstanding amount, adjusted for payments/refunds/reversed transactions."
As per their explanation, if a customer does not make full payment, they lose the interest-free credit period benefit, and the bank can charge interest from the day of the transaction. Since the interest-free period is lost, the bank will charge interest on the entire billed amount, not just the remaining due amount.
I tried to explain that the RBI has directed that the 'interest-free credit period' is suspended if any balance of the previous month's bill is outstanding. This means if a customer does not make full payment this month, they will not get any interest-free credit card period on the remaining due amount from the date of the transaction and on any future transactions until they repay all the remaining due balance from the last statement.
However, the two product managers were confident that they were fully complying with the RBI guidelines. I then requested them to look at other banks' statements and why other banks use the term "interest will be charged on balance outstanding amount including any new purchases and cash advances," but unfortunately, the product managers were not convinced by my argument. I finally suggested that they re-examine the matter and also review other banks' credit card statements if possible.
After this call, when I checked the RBI master direction again, I found another supporting point for my argument. Please refer to Query 6 of the "Frequently Asked Questions (FAQs) of Master Direction (MD) - Credit Card and Debit Card – Issuance and Conduct Directions, 2022":
"Query 6: In case a cardholder makes partial payment, can a card issuer charge interest/levy late payment charges on the total amount due?"
"Response: In case a cardholder does not clear the total amount due within the payment due date, the interest-free credit period will be lost, and interest may be levied from the date of the transaction on the outstanding amount (adjusted for payments/refunds/reversed transactions as and when credited) and not on the total amount due. Further, late payment fees and other charges relating to delay in payment shall be levied only on the outstanding amount (adjusted for payments/refunds/reversed transactions as and when credited) after the payment due date and not on the total amount due."
From the above-mentioned FAQ, it is clear that banks should charge interest on the remaining due balance and not on the total due balance. I do not understand how a major bank like ICICI could misinterpret the RBI's guidelines. I suggest that ICICI Bank review this matter to ensure they are not making any errors.
As I always recommend, please conduct your own research before believing anything, even if the statement comes from a top bank official. Do not blindly trust bank employees; be an informed customer.
A cautionary note for all ICICI Bank credit card users: Please do not make part payments, as they will charge you interest on your total due amount, including the amount you have already paid and the remaining due.
If any bank charges you interest on your total due amount even after a partial payment, file a complaint with the RBI Banking Ombudsman.
The problem:
The RBI directed all credit card issuers in India to follow this guideline:
"v. ... Late payment charges and other related charges shall be levied only on the outstanding amount after the due date, and not on the total amount due.
vi. Interest shall be levied only on the outstanding amount, adjusted for payments/refunds/reversed transactions."
*Check Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (Updated as on March 07, 2024) Point No 9. (b). v. and vi.
This simply means: If you make a partial payment on your credit card bill before the due date, the bank can only charge interest and late fees on the remaining amount, not on the basis of the original total amount due.
Example:
Sujit has an ICICI Bank credit card with a bill of Rs. 50,000 due on May 28, 2024. He pays Rs. 30,000 on May 25, 2024. ICICI Bank can only charge late fees and interest on the remaining Rs. 20,000 after the due date plus a 3-day grace period, not on the full Rs. 50,000.
Now, when I check my ICICI Bank Emeralde Private Metal Card statement, I found that they have written:
"Interest will be charged if the Total Amount Due (TAD) is not paid by the payment due date. Interest will be charged on the Total Amount Due and on all new transactions except fees/charges and GST/taxes (from the transaction date) until such time as the previous outstanding amounts are paid in full. In addition, interest will be levied on all cash advances from the date of the transaction until the date of payment."
This indicates that ICICI Bank is not adhering to the RBI guidelines.
Now, I was like, wow! ICICI Bank is still using old text and not bothering to change it even after the RBI instructed all banks to do so. I know... ICICI Bank only changes the MITC and other terms after someone files a complaint against them. 😄
Jokes apart, I decided to check other banks' statements to compare their practices. So, I checked my HDFC Infinia, IDFC First Wealth, Yes Private, Axis Atlas, SBI Cashback, and a few other card statements and found that they are following the RBI guidelines.
For example, I'm attaching a screenshot of the Yes Private credit card statement:
They have clearly mentioned that interest will be charged on the remaining due amount (outstanding balance) and not on the total due amount.
Now, whom should we blame here? ICICI Bank for not following the RBI guidelines, or the RBI for not carefully checking if all the banks are following their guidelines?
Post your opinion here.
Update (On 4th June, 2024):
Today, two ICICI Bank credit card product managers called me to discuss the issue I highlighted on TFC and Twitter on 28th May, 2024, regarding interest charges on the total amount due.
According to them, ICICI Bank is fully complying with the latest RBI guidelines. They pointed out that as per point 9.b.iii of the "Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (Updated as on March 07, 2024)," ".... The MITC shall specifically explain that the interest-free credit period is suspended if any balance of the previous month's bill is outstanding." This is interlinked with the point I highlighted, 9.b.vi: "Interest shall be levied only on the outstanding amount, adjusted for payments/refunds/reversed transactions."
As per their explanation, if a customer does not make full payment, they lose the interest-free credit period benefit, and the bank can charge interest from the day of the transaction. Since the interest-free period is lost, the bank will charge interest on the entire billed amount, not just the remaining due amount.
I tried to explain that the RBI has directed that the 'interest-free credit period' is suspended if any balance of the previous month's bill is outstanding. This means if a customer does not make full payment this month, they will not get any interest-free credit card period on the remaining due amount from the date of the transaction and on any future transactions until they repay all the remaining due balance from the last statement.
However, the two product managers were confident that they were fully complying with the RBI guidelines. I then requested them to look at other banks' statements and why other banks use the term "interest will be charged on balance outstanding amount including any new purchases and cash advances," but unfortunately, the product managers were not convinced by my argument. I finally suggested that they re-examine the matter and also review other banks' credit card statements if possible.
After this call, when I checked the RBI master direction again, I found another supporting point for my argument. Please refer to Query 6 of the "Frequently Asked Questions (FAQs) of Master Direction (MD) - Credit Card and Debit Card – Issuance and Conduct Directions, 2022":
"Query 6: In case a cardholder makes partial payment, can a card issuer charge interest/levy late payment charges on the total amount due?"
"Response: In case a cardholder does not clear the total amount due within the payment due date, the interest-free credit period will be lost, and interest may be levied from the date of the transaction on the outstanding amount (adjusted for payments/refunds/reversed transactions as and when credited) and not on the total amount due. Further, late payment fees and other charges relating to delay in payment shall be levied only on the outstanding amount (adjusted for payments/refunds/reversed transactions as and when credited) after the payment due date and not on the total amount due."
From the above-mentioned FAQ, it is clear that banks should charge interest on the remaining due balance and not on the total due balance. I do not understand how a major bank like ICICI could misinterpret the RBI's guidelines. I suggest that ICICI Bank review this matter to ensure they are not making any errors.
As I always recommend, please conduct your own research before believing anything, even if the statement comes from a top bank official. Do not blindly trust bank employees; be an informed customer.
A cautionary note for all ICICI Bank credit card users: Please do not make part payments, as they will charge you interest on your total due amount, including the amount you have already paid and the remaining due.
If any bank charges you interest on your total due amount even after a partial payment, file a complaint with the RBI Banking Ombudsman.
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