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Credit card blues

The rapid growth of credit cards in India has not been matched by the quality of customer service. Card-issuing banks have been remiss in following the regulatory rules. After analysing the large number of complaints received by it and by the banking ombudsmen, the Reserve Bank of India has issued, once again, comprehensive guidelines for the card-issuing banks. Most of them are, expectedly, not new and the fact that the central bank has to reiterate them clearly shows that the banks have been extremely lax, as for instance in vetting a prospective cardholder’s creditworthiness. There has been a big jump in the number of defaults, a phenomenon that is deeply worrying. In many cases, credit cards were issued even without requests from customers. Issuance of such unsolicited cards has now invited the regulator’s wrath: penalties have been proposed, for instance, on such cards activated and billed without the customers’ consent. If such cards are stolen and misused before they reached the customers, it is the banks that will have to bear the loss.

It is obvious that in a race to corner a large market share, banks, including some in the public sector, have been recklessly adding to the number of credit cardholders without getting even rudimentary information about their clients. Government-owned banks have been relative latecomers but it is difficult to justify their aggressive growth strategies; they stand to gain only to the extent that they add to their database of customers, who can be sold other financial products too. The RBI should ask these banks to furnish information on the financial viability of their credit card operations on a regular basis. Recently the State Bank of India, after reporting huge losses on this account, announced a revamp of its joint venture with a well known multinational. Credit card defaults are a major worry in the United States and other developed markets, where issuers have greater access to technology and customer information. As has been the case in India, a primary cause is the extremely lax rules of procedure that led to the sanctioning of credit cards even to people with no known sources of income. The RBI’s repeated caution to ensure that cards are given only to those who qualify and, equally importantly, apply for them can no longer be ignored.

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