A bench comprising Justices Bela M. Trivedi and Satish Chandra Sharma overturned the NCDRC’s decision, which had classified such high rates as an unfair trade practice.
The Supreme Court on Friday overturned a 2008 ruling by the National Consumer Disputes Redressal Commission (NCDRC) that restricted banks from charging over 30% annual interest on overdue credit card payments. The decision permits banks to set their own rates within the framework of existing regulations.
A bench of Justices Bela M. Trivedi and Satish Chandra Sharma overturned the NCDRC’s decision, which had classified such high rates as an unfair trade practice. The Supreme Court’s ruling followed appeals by several banks, including Standard Chartered Bank, Citibank, and HSBC, challenging the NCDRC’s restriction on credit card interest rates.
“In view of foregoing reasons, the judgment of the NCDRC is set aside and appeals are allowed,” said justice Trivedi while delivering the verdict. A detailed copy of the judgement was awaited till the time of going to print.
The Supreme Court stayed the contested NCDRC order on February 3, 2009. Currently, most credit card companies in India charge annual interest rates ranging from 22% to 49%.
The case stemmed from a petition filed by Awaz Foundation, an NGO, challenging whether charging interest rates between 36% and 49% per annum on credit card dues constituted exploitative or usurious practices. In its 2008 ruling, the NCDRC described these rates as excessive, emphasizing that they placed an undue burden on consumers, especially those facing financial hardship.
The NCDRC had also criticized the Reserve Bank of India (RBI) for its lack of regulatory intervention, asserting that the central bank’s failure to define a “usurious” interest rate had enabled financial institutions to exploit borrowers. The commission stressed that penal interest should not be capitalized and accused banks of inflating dues through compounding practices.
To support its position, the NCDRC highlighted global credit card interest rates, noting substantially lower rates in developed economies like the United States and the United Kingdom, where rates ranged from 9.99% to 17.99%. The commission argued that India lacked justification for adopting the higher rates seen in smaller, emerging economies and advocated for moderation in line with developed markets.
The RBI clarified that it does not regulate specific interest rates charged by banks, leaving such decisions to individual banks’ boards under the Banking Regulation Act, 1949. While advising against “excessive” rates, it avoids imposing strict caps.
Banks argued that capping interest rates would hurt profitability and limit credit availability. They justified high rates as necessary to offset default risks and service costs, such as customer support and free alerts. Additionally, they asserted that the NCDRC lacked jurisdiction over their operations, particularly interest rates, which are regulated by the RBI. Senior advocates Abhishek Manu Singhvi and Dhruv Mehta represented some of the banks.
In overturning the NCDRC ruling, the Supreme Court sided with the banks, stating that interest rates are determined by market dynamics and RBI regulatory oversight, not consumer forums. The court recognized the complexities of managing credit card facilities and the need for institutions to mitigate risks through higher interest rates, according to lawyers involved in the case.