MUMBAI, June 8: Even though the Reserve Bank of India (RBI) has now accorded more freedom to the banks to issue credit cards, the plastic money business of several public sector banks is plagued by lack of adequate checks and balances besides proper guidelines. Notwithstanding this, more banks and institutions are planning to enter the credit card business.According to banking sources, the credit card business of public sector banks in general and their card subsidiaries in particular have incurred huge losses due to mounting level of default by individual card holders, lack of proper internal auditing and thin margin of profit.To add to the woes of the credit card business is the lack of clear cut guidelines from the Reserve Bank about plastic money. The situation at Centralcard of Central Bank of India - the first credit card subsidiary of a PSU bank in India - is a clear indicator of the corroding health of the business. According to reliable sources, the bank has incurred a loss in the businesssince its inception.According to a confidential note prepared by a senior official of Centralcard, the credit card department of Central Bank "had never been in real profit in the past nor will it be in the near future". Almost all the card players have been selective in issuing fresh cards and renewing the old cards.In almost all cases, the dues outstanding from the card holders has been increasing. "The outstanding dues of Rs 43 crore as on March 31, 1996 were brought down to Rs 37 crore as on March 31, 1997. Notwithstanding untiring efforts put in, in generating/galvanising recovery movement, in all zones of the bank, still overdues of 6 months and over stood at Rs 28 crore as on March 31, 1997," says an internal confidential note about Centralcard, a copy of which is available with The Indian Express.The note adds that the franchise agreement with international credit card company Mastercard and other business enterprises has also gone against the bank's interest. There was "huge lossassets in Leela Card and chargeback liability which defied any solution as over 80% of the overdues were loss assets," the note says. Leelacard was jointly launched by the Centralcard and Hotel Leela Venture Ltd.According to the confidential note, the affiliation did not bring in the necessary technology, staff training or recovery mechanism for Centralcard.RBI officials and the Central Bank of India authorities did not respond for four weeks to a questionnaire about credit cards sent by The Indian Express.According to the RBI, 12 banks have issued their own credit cards and sixteen are issuing cards as part of their tie-up with existing banks in the business. Due to the difficulty in recovering money, two public sector banks, including Syndicate Bank had stopped the business. Now the SBI is planning to launch its own card. One leading financial institution is also gearing up to enter the card business. Even other private business enterprises have been allowed to issue cards.
