State Bank of India, the largest commercial bank in the country, is gearing up to unleash a rate war on the credit card turf by shifting to a 'dynamic pricing' scheme for its customers.

Some foreign and private banks have already done this but this will be the first big move by a dominant public sector bank to take on competition.

SBI, which has 1.5 million credit cards in force, will introduce variable monthly interest rates for its customers based on their track record and conduct.

"A customer with a good credit history would be eligible for lower rates of interest. The scheme should hit the market in a month," said bank officials.

So a SBI customer who regularly pays the entire spent amount before the due date, never defaults and gives out no bouncing cheques, could be in for a treat with a lower monthly interest rate with no hidden charges.

Currently the bank charges a flat monthly interest rate of 2.75 per cent. It is not known to what extent it will come down under the proposed scheme.

SBI will apply variable rates for both its old as well as new customers. It will utilise data from the newly established credit information bureau called Credit Information Bureau (India) Ltd, for checking the track record of credit card customers and charge them differently depending on their conduct, said officials.

SBI currently numbers fourth in the pecking order after Citibank, ICICI Bank (both claim to be number one with each having 2.5 million cards in force) and Standard Chartered (1.6 million cards). The total number of cards in use are around 10 million.

Citibank, ICICI Bank and Standard Chartered Bank introduced variable interest rates for its credit card customers over the last one year and are nonchalant towards SBI move.

"All leading players in the market already do offer variable pricing. Our rate varies from 1.99-2.95 per cent depending on the performance of the customer. This rate is reset every 3-6 months," said Shyam Srinivasan, head-credit cards & personal loans, Standard Chartered.

HSBC, a less aggressive card issuer, offers a standard rate of 2.95 per cent and is examining the variable rate game. Asked if HSBC would introduce variable pricing, Puneet Chaddha, head-credit cards, HSBC said, "We are keenly observing the space."