IDFC First Bank Ltd seeks to expand its credit card business with two unique offerings, including interest-free cash advances for 48 days and dynamic interest rates on revolving credit. The services were launched on Friday.
The interest-free cash scheme is a first for the industry and is a feature that the bank is testing, B. Madhivanan, chief operating officer, IDFC First Bank, said in an interview.
Also Read | What 2020 did to India’s inequality
Existing interest rates on cash advances on credit cards are very high. As such, the share of cash advances is just a fraction of overall credit card transactions. For instance, last November, customers withdrew just ₹231.3 crore from ATMs, while swiping for ₹62,349.7 crore on point-of-sale terminals.
Banks typically charge ₹250-450 for every cash withdrawal on credit cards, along with an interest of 2.5-3.5% per month, applicable from the day of withdrawal till the full amount is repaid. Interest is also levied on non-cash spends, but customers enjoy an interest-free period unlike cash transactions.
IDFC First Bank is entering the credit card space with its existing customers on an invitation only basis, but will extend the facility to other customers after March, Madhivanan said. “When you are underwriting the customer, you are underwriting him for a credit limit and giving a certain percentage of that as cash. It has always been positioned as an emergency feature. The industry always tried to charge you both a fee and interest on the cash component to prevent people from taking it or to make money out of it,” he said.
IDFC First Bank, Madhivanan said, wants to make just the right amount of money, about ₹250 per transaction, irrespective of the amount a customer withdraws. “It is an experiment and is not like our primary feature. We will see how it plays out and, accordingly, look at it,” he said.
Another key feature that will attract customers, Madhivanan said, is dynamic interest rates, from 9% to 36% per annum, compared to the fixed rates of 36-40% charged by other card issuing banks. The annual percentage rate will depend on a customer’s credit behaviour, IDFC First said.