Tuesday, December 18, 2007

RBI to bring transparency in credit card operations

Reserve Bank of India has taken a step to help credit cardholders who have not used their credit cards for more than six months. RBI is bringing transparency in credit card operations. The central bank has made it mandatory for banks to refund the small credit balance to cardholders if the credit card is rendered inactive for more than six months. This is for credit cardholders who have a credit balance of Rs 100 or lower in the account.

RBI has noted that at various instances the foreign and private sector banks stop sending the statements to their customers incase their card rendered to be inactive for six months or have a credit balance of Rs 100 or lower in the account.

After that the credit balance is written off to a suspense account and then transferred to the profit and loss account.

Whereas in the PSU banks the account is kept is on hold for eight years before writing off the account.

Bankers said some of the major foreign banks who have major hold in credit card business have even amended their policy of writing off the credit balance in inactive credit card holders after being pulled up by the RBI in its recent inspection.

Bankers clarified that even if the credit balances are of very small denomination, the amount becomes large after buildup which is transferred to the profit and loss account. In fact, the RBI has asked most of the banks to submit the report about the practice of managing the credit balance of the customer.

It has also asked various banks to justify the practice of writing off small balance in the credit card.

Usually a customer rounds off the amount and tends to give more than the credit card balance. The extra amount more than the credit card bill forms a part of the credit balance in the customers account. This gets adjusted in the next month’s credit card bill but gets increase if the card is not put to use.

Even if the card is rendered inactive, six month is a very less period to suspend the activity and to transfer the amount to the profit and loss account, said a banker.

The RBI observed that the card holder should be informed of the credit balance and amount be refunded if the cardholder confirms that the card is no more valid in transaction.

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