The Reserve Bank of India has issued a comprehensive new regulatory framework governing credit and debit card operations, replacing the earlier 2022 Master Direction with a freshly notified set of directions titled “RBI (Commercial Banks – Credit Cards and Debit Cards: Issuance and Conduct) Directions, 2025.” The new directions, issued under circular RBI/DOR/2025-26/155, carry immediate effect and introduce several substantive changes to how interest, late payment charges, and fees may be levied on cardholders — changes that directly affect how credit card debt accumulates for the estimated 10 crore-plus credit card holders in India.
The framework arrives at a moment when credit card outstanding balances have grown substantially. RBI data shows credit card outstanding crossed ₹2.7 lakh crore in FY25, with delinquency rates at the 90-day-past-due mark rising across several large issuers. Against this backdrop, the new directions represent the most significant revision to credit card conduct rules in three years.
The Core Change: Interest Only on Outstanding Amount, Not Total Due
The single most consequential provision in the new directions addresses a practice that has driven debt accumulation for millions of cardholders. Under the RBI (Commercial Banks – Credit Cards and Debit Cards: Issuance and Conduct) Directions, 2025, late payment charges and other related charges shall be levied only on the outstanding amount after the due date, and not on the total amount due. Similarly, interest shall be levied only on the outstanding amount, adjusted for payments and refunds — not on the total amount due. World Bank
The practical significance is considerable. Under the previous practice of several banks, if a cardholder paid a substantial portion of the bill but left a small amount unpaid, interest was calculated on the entire original outstanding — not merely on the unpaid portion. The new direction explicitly prohibits this. A cardholder who pays ₹9,000 of a ₹10,000 bill, leaving ₹1,000 unpaid, should now be charged interest only on the ₹1,000 and not the full ₹10,000.
The RBI’s FAQ on the Master Direction, available on the central bank’s website, clarifies this further: “In case a cardholder does not clear the total amount due within the payment due date, interest free credit period will be lost, and interest may be levied from the date of transaction on the outstanding amount (adjusted for payments/refunds/reversed transactions as and when credited) and not on the total amount due.” IMF
What the New Directions Do Not Change: Interest Rates Remain Unregulated
While the new directions tighten conduct rules, they do not impose a ceiling on credit card interest rates themselves. The 2025 directions state that card issuers shall be guided by the RBI (Commercial Banks – Interest Rates on Advances) Directions, 2025 while determining interest rates on credit card dues, and that interest charged shall be “justifiable having regard to the cost incurred and the extent of return that could be reasonably expected by the card-issuer.” Card issuers are required to prescribe an interest rate ceiling in line with other unsecured loans as part of their board-approved policy. World Bank
In practice, this means credit card rates remain among the highest in the formal lending system. In India, credit card interest rates typically range from 30 to 48 per cent per annum, equivalent to approximately 2.5 to 4 per cent per month. Because cards are unsecured — unlike home or vehicle loans that carry collateral — banks price in higher default risk, making credit card debt among the most expensive forms of borrowing available to retail customers.
The compounding effect of these rates on unpaid balances explains how credit card debt becomes structurally difficult to escape. A cardholder carrying ₹50,000 of revolving balance at 3.5 per cent per month accumulates ₹1,750 in interest in the first month alone. If only the minimum amount due — typically 5 per cent of outstanding — is paid each cycle, the principal reduces by a trivial amount while interest continues to compound on the near-total balance. The 2022 direction, now superseded, required banks to display a warning on billing statements that paying only the minimum due would result in repayment “stretching over months/years with compounded interest.” The March 2024 amendment to the earlier direction added a requirement for card issuers to prominently display warnings about the consequences of paying only the minimum amount due, and the 2025 directions have carried this transparency requirement forward. IBEF
No-Cost EMI: A Concealment Now Explicitly Prohibited
One of the most widely misunderstood features in credit card marketing is the “no-cost EMI” or “zero-interest EMI” offer at the point of purchase. The RBI’s Master Directions explicitly prohibit card issuers from disguising EMI conversion with interest as a no-cost or zero-interest EMI. Before any conversion to EMI, the principal amount, the interest component, and any discount provided by the merchant or card issuer must be clearly shown separately — and this bifurcation must also be reflected in the card billing statement. Worldbank
The mechanics behind most “no-cost EMI” transactions is that the merchant or the platform absorbs a subvention charge equivalent to the interest cost, which is often factored into the product price. The direction’s requirement for separate disclosure of the interest component — even where it is being waived or subvented — is designed to ensure the cardholder understands the true cost structure of the transaction.
Foreclosure, Account Closure and Cardholder Rights
Credit card accounts must be closed within seven working days of a cardholder’s request, made through any channel including helpline, IVR, SMS, email, or mobile banking. Failure to close within this period attracts a penalty of ₹500 per calendar day on the card issuer — an amount payable to the cardholder or the regulator, depending on the escalation path. Press Information Bureau
On pre-closure of EMI arrangements: The new directions prohibit card issuers from offering unsolicited loans or credit facilities to cardholders without explicit consent. In cases where an unsolicited facility is extended and the cardholder objects, the card issuer is not only required to withdraw it but may also be liable to pay a penalty as determined by the RBI Ombudsman.
Cardholders who wish to escalate unresolved complaints have recourse to the RBI’s Integrated Ombudsman Scheme, which covers credit card grievances against scheduled commercial banks and NBFCs.
The Structural Problem That Rules Alone Cannot Solve
The new directions address conduct abuses — charging interest on the full bill when only partial payment is made, concealing the cost of EMIs, imposing undisclosed charges — but they do not alter the fundamental arithmetic of credit card debt. With interest rates ranging from 30 to 48 per cent per annum, any unpaid balance that is rolled over for multiple billing cycles becomes progressively harder to retire through minimum payments alone.
The only complete protection against credit card finance charges is paying the total amount due in full by the payment due date each billing cycle. When this is done, the interest-free credit period — typically 20 to 50 days — means the cardholder uses the bank’s money at zero cost. Once any amount is carried forward, interest accrues from the date of the original transaction, not from the due date. Worldbank
For cardholders already carrying significant revolving balances, the regulatory framework provides important protections against improper charges. It does not, however, alter the cost of debt itself — a matter that remains governed by each issuer’s board-approved rate schedule, disclosed under the Annual Percentage Rate framework mandated by the same directions.
Note to readers: This article presents factual information on regulatory provisions and credit card mechanics under applicable RBI directions for informational purposes only. It does not constitute financial or legal advice. Readers should consult a SEBI-registered financial advisor or certified financial planner for personalised guidance.
