How RBI’s latest rules on credit card billing cycle impact you

Know your billing dates and clear all outstanding dues to get the benefit of interest-free period

Credit card users now have more control over their ‘plastic money’, thanks to regulations brought in by the Reserve Bank of India (RBI) in April 2022. A central bank directive to banks to conform to these regulations governing credit and debit cards, which came into effect in July that year, stated that cardholders should be given a one-time option to modify the billing cycle of their credit cards. Now, RBI has introduced amendments to these rules effective 7 March. It has asked banks to allow card users the option to change the billing cycle more than once.

The RBI has also amended another important provision in its regulations pertaining to the minimum payment due. In the circular last year, RBI had directed banks and other card issuers that they should caution card users of the pitfalls of paying only the minimum amount due in the billing statement. A second clause stated that they also needed to disclose the remaining unpaid amount that will lose the benefit of interest-free period. Bot these rules would have helped cardholders get an idea of the extra amount they would have to pay in interest.

In the amendment though, the second clause has been removed. Now, lenders only have to give a warning to the effect that “making only the minimum payment every month would result in the repayment stretching over months/years with consequential compounded interest payment on your outstanding balance” in the statement. The banks are now not mandated to specify the amount that will attract interest.

Mint explains how these two provisions impact credit card users. Credit billing cycle Controlling the billing cycles of your card has many benefits. A billing cycle is the period between two consecutive statement dates. A statement date is the day your credit card bill of the ongoing month is generated and this is done on a fixed monthly date. The due date to pay the bill is typically 10-15 days after the statement is generated. This means that the card user essentially gets an interest free period of up to 45 days, inclusive of 30 days of the billing cycle and 10-15 days until the due date, combined. The amount not cleared on the due date attracts interest and any payments made after the due date do not get credit-free period. (see graphic)

With the option to change the billing cycle, you can set it in such a way that the due date falls at a time that suits your cash flow.

Further, card users can also maximise the credit free period by setting the statement day closer to the period in a month when they spend the least, said Kashif Ansari, assistant professor, OP Jindal School of Banking and Finance. “Say, for instance, a user pays most of the monthly expenses between the 1st and 10th of every month. If they set the statement date after the 25th in the month, the due date will fall around 10th or 15th of next month, giving them about 45 days of interest-free credit period for maximum transactions. In the same example, if the user’s statement date is around 10th, they will get only 25 days of credit-free period,” Ansari explained.

Last, the flexibility to change billing cycles will help those with multiple credit cards. “The cardholder has to track both the statement and the due date for each card. Doing so for multiple cards can be cumbersome,” said Ansari. Cardholders should set the billing cycles for multiple cards in a way that all due dates fall on the same day.

Cardholders can place the request to change the billing cycle to the card issuer by sending a mail to the customer care email ID or by calling the helpline. “Cardholders should clear their outstanding dues and EMI (equated monthly instalment) balance and then place the request,” said Ankush Setia, co-founder of Multiply, a credit card comparison platform. The maths behind the dues The idea behind giving the minimum payment due option to cardholders is that paying a small sum of the outstanding amount will save you from late payment penalty and fees. But what banks don’t tell their customers is that by doing so not only does the outstanding amount in the current billing cycle attract interest but all other transactions done in subsequent billing cycles do not get the interest-free credit period. This means all transactions done after the due date carry interest till the time the total outstanding amount is fully cleared.

“The MITC (most important terms and conditions) shall specifically explain that the ‘interest-free credit period’ is suspended if any balance of the previous month’s bill is outstanding,” RBI said in the amended provisions.

Banks arrive at the interest on the outstanding amount by calculating interest on each transaction. Given that the process is tedious, it is not easy for customers to calculate the interest on the outstanding amount themselves. They get to know about the total interest liability only when the next statement is generated. Financial experts advise that cardholders should clear the full outstanding amount each month before the due date and not just pay the minimum amount due.