Monday, Nov 28, 2022

Credit Card EMIs Get Costlier; Middle-Class Shoppers Likely To Be Affected Most

Big-ticket purchases on EMIs will cost more as leading lenders add processing fees to the transaction. Young shoppers may defer purchase or opt for other options.

The second largest issuer of credit cards in India, State Bank of India (through SBI Cards), has announced that it will levy a processing charge of Rs 99 plus taxes on credit card purchases that will be paid for through equated monthly instalments (EMIs). SBI’s market share in credit cards is about 19 per cent, with 12.76 million cards, according to data from the Reserve Bank of India (RBI).

Therefore, this move will affect many credit card users. Having to pay more to convert credit card purchases into EMIs will probably make many shoppers think twice. 

Added Cost

Big-ticket purchases such as white goods, gadgets, even holiday packages, are often converted into instalments.

“The ability to convert big-ticket purchases such as consumer durables and electronics was a boon for credit card holders as they could avail instant credit. This move by SBI to levy processing fee on credit card EMI purchases, which is over and above the interest charges for conversion of the purchases into EMIs, will likely pinch the middle-class customers more. We could potentially see a drop in the credit card purchases, going forward,” says V. Swaminathan, CEO of Andromeda and, a lending platform.

Not only SBI, but other card issuers are also already charging a processing fee for these transactions. “For example, HDFC Bank charges a processing fee of Rs 199 + GST on Easy EMI on credit cards,” says Swaminathan. The largest market share of credit cards is with HDFC Bank, which has about 15.24 million cards and a market share of 23 per cent.

ICICI Bank, which is the third largest with 11.97 million credit cards and about 18 per cent market share, also imposes a processing fee of Rs 199. So, among the three biggest credit card issuers, SBI’s charges of Rs 99 are the lowest.

The processing fee is a one-time payment and appears in the monthly statement. But it is over and above the interest the card provider charges.  

Losing Attraction 

Jasmine Sinha, a 27-year-old auto engineer working in Vadodara, says she opts only for no-cost EMIs and would rather defer the purchase than pay more as interest. “If someone has to pay a processing fee over and above the interest, then they may choose not to buy, unless it is something that they need urgently,” she says.

Younger shoppers, among others, are likely to alter their buying decisions. Moreover, they may opt for other payment options such as buy-now-pay-later (BNPL).

Other banks are likely to follow suit in adding processing fees to the EMI-based purchase. “We expect the processing fee on credit card EMI transactions to be a standard norm in the industry,” says Swaminathan.