Before you blame the credit card industry for high interest rates, there could be something you can do to help them reduce the charges -- improve your payment promptness profile. If you do that, there could be interest charges gains of as much as 1.7 per cent.

Banks seem to be moving towards varying interest rates based on the risk and repayment pattern of credit card customers.

Citibank has already adopted the model. Said T R Ramachandran, business manager (cards), at Citibank: "If any customer is prompt in paying up his credit dues over a period of time, we are lowering the interest charges to as low as 1.25 per cent as against the maximum interest of 2.95 per cent which is prevalent. There are whole layers of interest rates levied on customers starting from 1.25 per cent to 2.95 per cent."

Citibank, he said, has been adopting this approach for the past six months. The credit card industry is still in its infancy in India, when compared with developed countries. This is in spite of almost all banks peddling the product very aggressively.

Due to the high risk involved in the credit card business, the interest rates are steep.

"This is a pretty high-risk business and the income to the bank does not flow in immediately when the sale is made. First, we have to invest in making the sale, then induce a customer to use the card and then incur a cost on our funds and then also look at getting back that money. This calls for highly professionalised systems and processes and in an effort to get back the funds in time, we are adopting the risk based assessment model through which we drop the interest rates for our customers who have a clean repayment record," he noted.

Other banks have not begun offering a scheme like this. A senior official from State Bank of India in Mumbai said the bank levies no interest if a customer pays his credit dues on time. Thus, the question of lowering the interest charges does not arise, he added.

The ICICI Bank, too, does not have something similar. A bank official in Mumbai said customers, based on their payment history, could be eligible for a cheaper personal loans, instead.

The interest rate charged will be anywhere in the range of 12 to 14 per cent which is lower than the normal rate of around 16 to 24 per cent.

An official from HSBC Bank in Mumbai said currently the bank does not offer preferential interest rate benefit to its customers. However, the bank is working on such a proposal, the official added.

Detailing on how the credit card industry can really take-off, Ramachandran said: "We have been in this sector for past many years and we have been able to garner 2.1 million customers. Just dropping interest rates is not the key to boost the sector. It is one of the elements. In the US, majority of people do their shopping through credit cards unlike in India. An area of concern is surcharge. There are many instances where merchant establishments still levy a surcharge, something they are not supposed to. This is a deterrent for customers wishing to use their credit cards."

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