The Hindu Business Line : New card game

THE RESERVE BANK of India's guidelines for credit card operations come as a timely intervention in a crucial component of the Indian banking system's operations, this time from the viewpoint of the consumer. The announcement on the best practices that banks, both private and public sector entities, will have to follow, represents one of the few and far between cases when the RBI has trained the spotlight on the performance of the banking system vis-à-vis its effects on the public at large. Although the guidelines are the consequence of a Working Group set up after the Annual Policy statement last year, the RBI has recognised the impact of the public's views on credit card operations as also those of the issuing banks. No one can now say that the guidelines are unfair or partisan as they represent a consensus on fair practices in credit card operations.

The basic thrust of the RBI guidelines is the principle of transparency and the `right to know'. Thus, every bank/NBFC issuing credit cards will have to mention "in clear and simple language (preferably in English, Hindi, and the local language) comprehensible to a card user" the Most Important Terms and Conditions (MITC) given in the Appendix to the Circular. These would need to be highlighted and advertised or sent separately, at all times in all correspondence at all stages of credit card operations. This should clear the mystery and obfuscation that has surrounded the credit card business. Most, if not all, users are bewildered by the summary way, for instance, in which issuing banks renew validity of cards without so much as a by your leave, or are simply too frightened to ask the right questions because many may not know them in the first place. The RBI guidelines should help in making users aware of what to ask in order to protect their own interests.

In this context it is pertinent that the RBI has placed the onus on the issuing bank/NBFC when it comes to calculation of various payments. Customers have to be given sufficient time to make payments and, most critically, complete information on the method of not only calculating late payment charges but also annualised percentage rates. Credit card issuers have to highlight fees charged on retail products and cash advances not only in the monthly statements but in the welcome kit as well. These RBI guideposts are timely because the industry is switching to the fast-lane, with one foreign private bank seeing its card business growing at 30 per cent this year. Like the mobile, the credit card is fast becoming one of the symbols of convenience and banks have been looking to cash in by aggressively targeting different segments, from farmers to 15-24-year-olds. . With newer segments of the consuming public entering the world of plastic money and deferred payment, the time was ripe for the central bank to intervene and mediate in a game whose rules were not clear to one set of players.

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