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| RBI’s proposed norms may ease life for cardholders |
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The RBI has come out with a draft guideline for credit card issuers, but how far this is implementable is the moot point, says K Vijayraghavan.
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The Reserve Bank of India (RBI) has recently come out with a draft guideline for the issuers of credit cards. The guidelines have been issued in the wake of complaints of harassment and ill-treatment meted to card holders particularly at the time of recovery.
The first issue that juts out is that issuers, viz., banks and NBFCs have been made liable for the actions of their direct sales agents (DSA). The issuers have been told in very unmistakable terms that the agents will have to comply with the norms of KYC (know your customers). What this essentially means is that the background of the customer should be thoroughly screened by the agents before issuing cards. The intention is laudable, but implementation is not easy.
It is not clear as to what options are available to issuers in case agents fail to fulfill the mandate. Well, the agency can be terminated, but it is only curative and less preventive. In other words, there appears to be a need to spell out more clearly the issues that could crop up in this area which would need to be settled between issuers and agents or how complicated problems can be sorted out and solutions enforced on the agents if necessary.
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The Banking Ombudsman will look into complaints from holders or issuers. But it is not indicated whether disputes between issuers and agents fall within the ambit of Banking Ombudsman. Appointing DSA is part of outsourcing activities which banks do. But the extent of risk involved in this exercise needs to be carefully measured. The issuers of cards will do well to keep this in mind and ensure that their agents are kept under strict surveillance. A larger issue is: whether outsourcing is desirable everywhere and anywhere may also worth debating.
Fixing credit limit
The guidelines say that the drawing limit for cards should be fixed by issuers after taking into account the fact that there is no prohibition on a person getting several cards, which will increase his drawing/borrowing power. The intention, again, is commendable, but one point needs clarification. What is the mechanism available to issuers to obtain information on the number of cards (and their drawing power), a person has? Will a declaration from the applicant be sufficient? What is the option available to issuers if an applicant suppresses such information? We are in a super computer world, and the death of distance has already been brought about. Can there be not a centralised agency where full details of cards issued by all agencies can be pooled? It should also be possible to plug loopholes in such a system where a person tries to obtain card under different names or by differently spelling his name.
Making calls
A number of protective clauses are seen in the guidelines from the point of card holders, particularly in regard to levying of interest, wrongful billing etc. This is no doubt welcome. It is also desirable to ensure that unsolicited calls are not made to customers and unsolicited cards are not issued as said in the guidelines. Maintenance of a “do not call registry” has been prescribed to be maintained by issuers. The agents are to be told by issuers that only those calls which are cleared by the latter should be made to customers. But, what will be the position in the case of calls made to a card holder who prefers to treat even a recovery call as an unsolicited call which is non-permissible and accordingly takes objection. How can the issuer or agents prove that it was not an unsolicited call? It will not be out of context to mention in this connection that making unsolicited calls have become a part of marketing strategies, and some foreign banks make such calls to offer loans.
Information protection
Considerable protection also seems to have been extended to card holders with regard to confidentiality of information. The issuers have been told that they should be very discreet and selective while passing on information about card holders to agents. It is said that “personal information provided by the card holder but not required for recovery purpose should not be released” by the issuers to agents. If the issuers make the agents fully responsible for recovery, stipulating such conditions may ultimately create problems for the issuers. The question will also arise as to who will be responsible to decide what all information about cardholders can be released or should not be released to agents by the issuers.
Recovery
It is not inconceivable that somebody asks for a list of dos and donts in this regard, which may not be very easy to prepare. The guidelines also say that neither the issuer nor the agents shall cause harassment of any kind to any holder while effecting recovery. It is known that certain cardholders get rough treatment at the time of recovery. There is no doubt that authorities effecting recovery should not take law into their hands while carrying out their duties. At this juncture, it is necessary to ponder as to how banks have been effecting recovery of normal advances. The situation is no different in the case of credit cards....Perhaps it may be advisable to bring in the concept of “willful defaulters”, who fall in a different category. This is a tricky and partially risky area and is double-edged. Putting such instructions in black and white as also not doing so are both trouble-inviting strategies. Needless to say all cases of credit card defaults cannot be taken to court either. Whatever may be the suggestions or disagreements one may have about the guidelines, instructions from RBI will have to be given due importance by all concerned. The point, however, is that instructions coming from RBI have statutory backing and are more or less mandatory. This being the case, RBI would also like to consider whether some portions of the guidelines could have been issued by Indian Banks’ Association (IBA).
No doubt, the guidelines have thrown lot of light on many grey areas. Nevertheless, issuers and agents will always be interested and rightfully so, in getting their money back. Their interests also need to be protected because, ultimately, here also depositors money is involved.
One may not be able to visualise hundred per cent recovery position for credit cards, but many of the problems which cropped up in this area have been to a significant extent, caused by the haphazard and untrammelled way in which credit cards were issued.
Proper appraisal
It would be interesting to conduct as study to ascertain whether default level and also the various other problems are more in the case of customers or non-customers. There is reason to assume that they will be more in the case of non-customers. If so, it would prove beyond doubt that lack of proper appraisal and examining the need to possess a credit card have given rise to the present state of affairs.
In the name of retailing, banks have perhaps compromised on certain cardinal issues thereby glossing over the inherent risks associated with retailing. Let me again quote the RBI deputy governor who said “While retail banking offers phenomenal opportunities for growth, the challenges are equally daunting.
How far retail banking is able to lead to growth of banking industry in the future, would depend on the capacity-building of banks to meet the challenges and make use of opportunities profitably.” This being so, RBI may like to consider whether banks need to be advised in unambiguous terms that they should put more emphasis on proper appraisal before issuing credit cards.
The writer is a retired Chief General Manager, RBI. E-mail:
k.vijayraghavan@gmail.com 
