MUMBAI: Since headline grabbing is his favourite pastime, US president Donald Trump, facing very low popularity ratings ahead of the mid-terms, has called for capping interest rates on credit card dues at 10% for a year. Trump says he will no longer let Americans be “ripped off” by credit card companies--whose interest rates of about 20-30% are only about half of what’s being charged in India--citing affordability concerns. Since politicians everywhere are cut from a similar cloth, the issue is likely to get some traction in our multi-hued political milieu as well.
Though no card issuer, including the largest players HDFC Bank, SBI Card and ICICI Bank, chose to speak on the likely impact of this political call on a purely market-economy issue, analysts that TNIE spoke to pooh-poohed the idea as “a wild call that strikes at the very root of free markets and markets-driven interest rate regime” that has finally come here after decades of regulation.
The last vestiges of regulated interest rates were freed first in April 2011 when the then governor D Subbarao gave freedom to pay any rate on savings bank deposits rate, then by his successor Shaktikanta Das in April 2021 by letting micro-finance companies set their own loan pricing but with a cap on the spread.
However, credit card issuers here charge usurious rates, which on an on-month compounding basis totals more than 50% annually on the dues if one chooses to roll over the dues paying the minimum amount. On a monthly interest rate that varies from 3.6% to 3.97% and other charges, a credit card customer pays anywhere between 42 and 50% if they choose to roll over the dues. At the same time if you clear the dues on time, you pay no interest at all and the bank earns nothing for the money for which it has already paid interest.
Credit card outstanding on compounded basis stood at Rs 15.6 trillion in November 2025, up 14.1% from Rs 13.7 trillion in November 2004 across 11.5 crore active cards in November 2025, reflecting a steady increase in card penetration and registering 7.1% on-year growth from 10.7 crore in November 2024. Latest available monthly data show that credit card spending rose 11.5% on-year to Rs 1.89 trillion in November, driven by e-commerce spending, but declined 11.9% from October and the monthly total outstanding stood at Rs 2.96 trillion as of November, compared to Rs 2.89 trillion in November 2024, according to an analysis by Saurabh Bhalerao, an associate director with Care Ratings.
“If you don’t charge a risk premium on a completely risky loan/unsecured product like credit card, how can a bank continue to be in business? Even in the US, the effective interest rate is around 7% now and with addition of staff cost, interest cost on the money being lent through credit card by the issuer, a pricing of 10% is simply not sustainable,” an analyst said, adding for a fully unsecured product like credit card has to have a risk premium else, the debtor has no incentive to pay back.
“To me the very idea sounds out of whack as it’s too wild a demand that can lead to a regressive regulatory regime. How can a free market function with below cost pricing?” another analyst wondered, noting that though the RBI has freed the last of the price controls, it has not spoken on credit card pricing given the very risky nature of the product.
He also said if the idea gets pushed politically here, card issuers will be cherry picking customers, which in turn can lead to millions of customers being pushed back towards money lenders and the informal credit market.
Many American agencies, which warned that the capping move would backfire on customers themselves, pegged the savings that US customers would make between $75 billion to $100 billion annually.
Credit card interest rates represent a significant portion of issuing banks’ revenue. Capping those rates could backfire, resulting in significantly stricter lending standards and making credit unavailable to lower-income people or those with lower credit scores.