Date: 2015-11-03 Answered

0037/2015: CREDIT CARD INTEREST RATES : REDUCTION

37/’15

Hon. Buddhika Pathirana,— To ask the Prime Minister and Minister of National Policies and Economic Affairs,—

(a) Is he aware—

(i) that the Credit Card interest rates are maintained at a very higher rate by the Commercial banks in spite of the fact that deposit interests and loan interests are at a very lower rate;

(ii) that the customers are exploited owing to the aforesaid state of affairs; and

(iii) that excess liquidity is available with the local banks?

(b) Will he inform this House—

(i) of the steps that will be taken in order to reduce Credit Card interest rates; and

(ii) of the steps that will be taken to increase the deposit interest rates?

(i) whether action will be taken by the government to amalgamate banks and the financial institutions;

(ii) if so, the reasons for it;

(iii) the date on which the said amalgamation will de done; and

(iv) the objective of the government in amalgamating banks and financial institutions?

(d) If not, why?

Asked Date

2015-11-03

Asked by

Hon. Buddhika Pathirana, M.P.

Ministry

Prime Minister and National Policies and Economic Affairs

Legislature

Eighth Parliament of the D.S.R. of Sri Lanka

Session

First Session

Question History

Answer

(a) (i) Yes. Interest rates vary on products depending on the customer categories, risks and cost of funds. Credits Cards are comparatively of higher risk and interest rates on Credit Cards are generally higher.

Banks charge relatively high interest rates for Credit Card advances due to the following main reasons:

(a) Availability of interest free credit period of up to 55 days, resulting in higher funding costs to banks as they do not earn any interest on interest free balances.

(b) Higher credit risks due to the unsecured nature of the product.

(c) High infrastructure requirement, including fraud detection systems to minimize frauds taking place locally and overseas, which provide a safe environment for payments.

(d) Deferred and flexible payment options made available to card holders.

(e) Cost of benefits offered.

As at end September 2015, 12 commercial banks including 2 foreign banks operating in Sri Lanka have issued credit cards and the outstanding amount stood at approximately Rs.60 billion. Currently, the interest rate on credit card advances is at a range of 18 per cent to 24 per cent. However the maximum interest rate is regulated at 24 per cent.

(ii) No. Banks offer different interest rates for various deposits and loan products for identified customer groups. If credit card dues are paid within the given period, interest is not charged. Therefore, it is not appropriate to state that the customers are adversely affected.

(iii) No. Banks face different levels of excess liquidity consequent to cash flow changes and such excess liquidity changes from time to time. However, the total liquidity in the banking system is regulated by the Central Bank under its Monetary Policy and excess liquidity is absorbed by the Central Bank to keep interest rates stable.

(b) (i) None. Currently, the interest rate on credit cards has a regulatory ceiling of 24 per cent. Further, reduction may be considered if other market interest rates decline.

(ii) In March 2015, the Government implemented a special interest scheme on fixed deposits for senior citizens where persons over 60 years of age are entitled to receive an interest rate of 12 and 15 percent and there are various Government funded loan schemes with lower interest rates.

Interest rates will adjust according to the market forces with effect of the policy interests of the Central Bank. Policy interest rates are decided under the Monetary Policy to address the macroeconomic concerns.

(ii) Not applicable

(iii) Not applicable.

(iv) Not applicable.

(d) Forcing the banks and financial institutions to consolidate will be unfair. Therefore, the consolidation programme initiated by the former government was reviewed and discontinued. The consolidation will be considered as per the proposals made by banks and financial institutions on a case-by-case basis under the prevailing law.

Answered Date

2015-11-03

Answered by

Hon. Niroshan Perera, M.P.