Banks can issue credit cards to users without surrogate income

The Reserve Bank of India (RBI) has allowed banks to issue credit cards to individuals with no independent means of income.

Earlier, the RBI, in its draft guidelines on credit cards, had proposed to ban banks from giving credit cards to persons with surrogate income.

The central bank revised its stance in its final guidelines on credit card issuance, after bankers, under the banner of Indian Banks' Association, lobbied against a ban on issuing credit cards to individuals such as students and housewives, who do not have independent means of income.

Following the announcement of the guidelines, banks have gone back to their drawing boards to chalk out new risk assessment models to gauge the profile of customers having surrogate income.

An official of a leading private sector bank said, "We are still studying these guidelines. Issuing credit cards to individuals having an attractive surrogate income does not pose any systemic risk to the bank."

The latest guidelines have asked card-issuing companies to independently assess the credit risk while issuing cards to dependents like housewives of high networth individuals and students.

"We can assess the financial viability of the prospective card-holder "� be it dependent/independent "� once a proper scoring model is put in place," said a foreign banker.

Banks are examining various options in this regard.

A senior official from a public sector bank said, "We also plan to deploy some internal scoring models pre-approved by the board to evaluate the credit risk of the prospective card-holder."

In its guidelines, the central bank has also urged the card-issuers to quote APR (annualised percentage rates) akin to global practices rather than quoting a monthly figure.

With regard to direct selling agents, the RBI has asked banks to be extremely careful that appointments of these service providers do not stoop in terms of quality of customer service.