Supreme Court sets aside NCDRC order barring banks from levying more than 30% interest rate on credit card dues

The court was hearing a petition challenging NCDRC decision in Awaz and Others Vs RBI case in which the question before the NCDRC was whether banks can charge credit card users interest at rates ranging from 36 per cent to 49 per cent per annum in case of default in payment within the time specified; whether such interest rates would amount to charging usurious rates of interest and whether the Reserve Bank of India (RBI) is required to issue any circular or guidelines prohibiting the Banks/Non-Banking Financial Institutions/money lenders from charging interest above a specific rate.

NCDRC had held that charging interest rate beyond 30 per cent shall be considered usuries rate of interest.

The Reseve Bank of India (RBI) said that though it has directed banks not to charge excessive rates of interest, the policy is not to directly regulate the rates of interest charged by the banks and, therefore, the RBI has left the matter to the Boards of Directors of the banks. Hence, the RBI cannot be directed to issue any further instruction as it is a discretionary power conferred under thr Banking Regulation Act, 1949.

The NCDRC, however, had said, “If the RBI is considered to be one of the watchdogs of finance and economy of the nation and the prevailing credit conditions are such as should invite its policy intervention, then, in our view, there is no justifiable ground for not controlling the banks which exploit the borrowers by charging exorbitant rates of interest varying from 36 per cent to 49 per cent per annum, in case of default by the credit card holders to pay amount before the due date.”

Pointing out that RBI has issued various circulars that banks should not charge usurious rate of interest, the Commission added that it has failed to specify what would be termed by it as usurious rate of interest.

The detailed judgment is yet to be uploaded on the court’s official web page.