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R.Y. Narayanan

COIMBATORE, May 22

THE report that LIC is toying with the idea of entering the credit card business offering low interest rate for carried forward balance has come as a boost to millions of cardholders groaning under the impact of high interest levied by most of the card issuers in the country.

LIC's plan, once it materialises, is set to re-write the way the credit card business is run in the country with the highest interest rate being charged despite the liberalised interest rate scenario.

LIC has several factors to its advantage — enormous reach across the country, strong brand image that inspires trust and the fact that it has millions of customers whose lives it has already covered and whose credit worthiness it is aware of based on their track record in insurance premium payment.

Currently, most of the credit card issuing banks charge an interest of 2.95-3 per cent per month (36 per cent per year) for the carried over balance and the inclusion of fresh purchases and adoption of daily balance method to calculate interest pushes up the interest charges still higher.

Though there were reports that the Advisor to the Finance Minister, Dr Vijay Kelkar, had quizzed the banks about the high interest charged for the card usage, they have remained largely unmoved.

It is the Andhra Bank, which charges the lowest interest rate — 1.75 per cent a month. Bank of Baroda recently cut the interest rate for its BoBCard members to 2.25 per cent a month.

But most others have left the interest rate undisturbed though some have marginally cut the rate for balance transfer from a competing card issuer to themselves.

But it is for a limited period subsequent to the transfer and the general interest rate has not been reduced.

Several reasons including that carried forward balance is akin to unsecured credit and the rate of default by cardholders is high have been advanced for this high interest.

Speaking to Business Line, an official from a nationalised bank that is also into the credit card business, said the main advantage of LIC would be its enormous client base that runs into several crores.

It would also be easy for LIC to keep track of its cardholders.

Another advantage that LIC would enjoy is the possibility of treating the surrender value of the policies as a security, which may deter any wilful defaulter.

For LIC, entry into credit card business is in sync with some of its existing business practices to earn higher revenue such as investing in the capital markets.

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