Banks can now charge over 30% interest on credit card dues after the Supreme Court overturned a 16-year-old verdict by the National Consumer Disputes Redressal Commission, which had previously deemed excessive interest rates an unfair trade practice.

A bench of Justices Bela M. Trivedi and Satish Chandra Sharma ruled that the National Consumer Disputes Redressal Commission's (NCDRC) observation, which deemed an interest rate above 30% per annum as an unfair trade practice, was "illegal" and an unwarranted interference with the Reserve Bank of India's clear powers. The court further stated that the NCDRC's ruling contradicted the legislative intent of the Banking Regulation Act, 1949. 

The Supreme Court emphasized that banks had not misrepresented information to deceive credit card holders, noting that the conditions for "deceptive practices" and unfair methods were clearly absent. Additionally, the court held that the NCDRC lacked the jurisdiction to alter the terms of the contract mutually agreed upon between the banks and their credit card holders.

"We agree with the submissions made by the Reserve Bank of India, that the question of directing the RBI to act against any bank does not arise, in the facts and circumstances of the present case and that there is no question of the RBI being directed to impose any cap on the rate of interest, either on the banking sector as a whole, or in respect of any one particular bank, contrary to the provisions contained in the Banking Regulation Act, and the circulars/directions issued thereunder," the bench said in its December 20 judgement.

The Supreme Court stated that while the National Consumer Disputes Redressal Commission (NCDRC) is authorized to annul unfair contracts that are disproportionately one-sided or include unconscionable terms, the interest rates charged by banks, which are set based on financial prudence and Reserve Bank of India (RBI) directives, cannot be considered unconscionable or unilateral. These rates were regularly communicated to credit card holders, ensuring transparency.

"The credit card holders are duly educated and made aware of their privileges and obligations, including timely payment and levying of penalty on delay," the bench said.

The Supreme Court observed that when customers availed themselves of the credit card facility, they were made aware of the key terms and conditions, including the interest rate, and agreed to be bound by the explicit stipulations outlined by the respective banks.

The court further stated that since the terms of the credit card operations were disclosed to the complainants by the banks before issuing the cards, the National Consumer Disputes Redressal Commission (NCDRC) had no authority to scrutinize these terms or conditions, including the interest rate.

"Even on merits, the Reserve Bank of India, has made it clear that there exists no material on record, to establish that any bank has acted contrary to the policy directives issued by the RBI," it said.

It was noted that the aggrieved party in the case did not approach the statutory authority, the Reserve Bank of India, with any objections regarding the interest rate or the high benchmark prime lending rate. The case involved appeals filed by Citibank, American Express, HSBC, and Standard Chartered Bank against the National Consumer Disputes Redressal Commission's (NCDRC) July 7, 2008 order, which had deemed interest rates ranging from 36% to 49% per annum as exorbitant and exploitative of borrowers.