The Hindu Business Line : ‘Rising credit card defaults worrisome’

Mumbai, Aug 1 The rise in cases of credit card defaults is a cause of worry and the reason for this is banks issuing cards without proper appraisal of customers, said Mr V Leeladhar, Deputy Governor, Reserve Bank of India.

Speaking to reporters on the sidelines of a banking seminar here on Friday, Mr Leeladhar said the issuance of cards had not reduced because banks even issue cards to people who don’t ask for it.

According to the RBI’s first quarter review of the Macroeconomic and Monetary Developments, for the entire banking industry, the outstanding on credit cards were to the tune of Rs 26,596 crore, as on May 23, 2008. In May 2008, the outstandings on credit cards had increased by 87 per cent or by Rs 12,375 crore, against a rise of 45 per cent or Rs 4,411 crore in the earlier year.

In his speech on payments and settlements systems, Mr Leeladhar said that the RBI was in the process of developing a National ECS (Electronic Clearing System) to enable centralised processing of the ECS transactions, in contrast to the existing ECS system that has decentralised operations at 70 locations, spread all over the country.

Under the National ECS, the processing of all the ECS transactions would be centralised at the National Clearing Cell at Nariman Point, Mumbai and sponsor banks would need to only upload the relative files to a Web server, with online data validation facility.

The National ECS would leverage the Core Banking platform of banks, to enable around 50,000 core-banking-enabled branches of various banks, to avail of this service. This would help the users and member banks to send, receive and process the data files at one centralised place, thereby improving the efficiency of the payment system.

Fiscal sops

In order to encourage banks to provide satellite connectivity for connecting branches in Northern Eastern States and in the under-banked districts the RBI is considering provision of financial incentive to the banks for adopting the technology. The RBI would bear 75 per cent of the cost of renting the V-Sat in hilly or rural areas and 50 per cent of the cost in semi-urban areas.

More Stories on : Credit Cards & Debit Cards | Non-Performing Assets

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