The Reserve Bank of India (RBI) has directed banks to draw up specific action plans to reduce the incidence of default in the credit card business and closely monitor the recovery of outstandings.
In light of the highly competitive environment in the credit card business, the banks have adopted relaxed underwriting standards, aggressive solicitation programmes and inadequate account management leading to increased credit risk, the RBI said. It cautioned them saying it may lead to overdues and non-performing assets in the credit card portfolios.
The apex bank emphasised the need for the banks to observe code of ethics formulated by the Indian Banks' Association while engaging recovery agents for collection of credit card overdues.
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It has advised banks to become members of one or more credit information bureaus and also take advantage of the existing negative file projects in order to maintain the selectivity of customers in their credit cards business to guard against defaults.
Banks should take measures to set up internal control systems to combat frauds. The frauds normally occur at the application stage; misuse of lost/ stolen cards and cards not received by genuine applicants; counterfeit and altered cards and merchants acting in collusion with card holders.
Card issuing banks have been advised to clearly spell out the fees/charges to the cardholder at the time of applying the credit card, if not done so far.
In particular, banks should bring to the notice of the cardholder, the rates of interest to be charged in case of delays and default in payments, besides the membership/ renewal fees, it said.