Credit cards for individuals with surrogate income likely

The Reserve Bank of India (RBI) may allow banks to issue credit cards to individuals with surrogate income. The draft guidelines on credit card issuance, made public by the RBI a few months back, had proposed to ban issuance of credit cards to those without independent income.

The RBI, now in the process of finalising the guidelines, might allow banks to issue credit cards to individuals having an attractive surrogate income as it did not pose any systemic risk, said a senior banker.

Commercial banks, under the banner of Indian Banks' Association (IBA), has moved the RBI seeking changes in the draft guidelines.

The financial viability of the prospective card holders could be assessed by using surrogates and a proper scoring model, added the banker.

Besides the undertaking the routine due diligence of knowing your customer (KYC), banks intend to deploy their internal scoring models pre-approved by their respective boards to evaluate the credit risk of the prospective card holders.

According to RBI's draft guidelines on credit card operations, announced in April, banks had to inform Credit Information Bureau of India Ltd (CIBIL) only if a customer defaulted on his/her payments. Banks, however, were expected to give sufficient time period for customers to prove their financial discipline.

Banks have now requested the regulator to do away with this anomaly by making periodic reporting of account positions mandatory. Banks have also expressed the desire to reduce the time limit to customers for redressal of grievances to 30 days from 60 days.

Other nitty-gritties like credit limit for the customer will be worked out by banks depending on their risk assessment models, said banks in a written communication to the RBI.

However, it may not be possible for the entire banking system to arrive at one maximum credit limit that an individual can be sanctioned.

Further, the regulatory concerns regarding an individual holding several cards will get addressed only when credit information companies like CIBIL become operational.