Banks block unused credit cards to save themselves from losses

Recently two banks took the decision to block the credit cards which are not being used by the card holders and also block the cards with pending bills. This decision sent a wave of shock amongst the credit card users across the country. General Secretary of the Credit Card Holders Association of India (CGHAI) CV Giddappa told DNA the decision has been taken with an aim to encourage people to save.

The banks have taken this decision because they are facing losses thus they are blocking services. The bank charge Rs300 on credit card holders as maintenance charge and get 2.5% commission on every transaction made on the card. But when the credit cards are not used at all banks do not get commission. Since people are not using their credit card the maintenance charge that is being incurred is certainly much more than what is being charged.

Moreover the bank does not earn any income by maintaining the accounts of the customers who don’t use the services. In Bangalore around 40 credit card companies are facing losses and from the last two months no new credit card has been issued by the banks. Only two Indian banks are issuing credit cards on the bases of customers meeting the criteria. Issuing of new cards has been left to the banks’ discretion.

Blocking accounts and transactions has been left to the bank’s discretion therefore they are working according to the guidelines issued by the Banking Codes and Standard Board thus not violating any norms of RBI or the board. Notices are issued to the cardholders before blocking their accounts.

But once a card has been blocked by one bank, then no other bank can issue a credit card again as the account holder's name is listed in the Credit Information Bureau of India Limited (Cibil) list. This list was issued in 2005 and sets a scale of 0-75 (0 being the lowest and 75 being the highest credit limit). The credit limit of most of the people staying in Bangalore is above the 30 mark, signifying their credit limit is increasing. Banks do not want any further increase in this limit.

As this problem was not predicted therefore at present there is no solution. A special committee is being set up comprising of experts various banks and economists who will review the problem and sought out a solution within six months. The main aim behind blocking of credit cards is to motivate people for savings and look for other alternatives of investment. A campaign has been started for the voluntary surrendering of cards.

Study reveals half of credit, debit cards in India inactive

According to survey data almost half of debit and credit cards in India are inactive may be because of insufficient resources in bank accounts and a holding of more than one card.

According to the survey done by Edgar, Dunn & Company (EDC) and India Cards Council (ICC) in contrast to UK and Australia where 90 per cent cards are active, in India there are only 56 per cent active debit cards. The study revealed, "There is a very low level of debit card usage at POS (Point of Sale) compared to other countries. For example: 26 per cent of active debit cards used at POS versus 86 per cent in the US and 45 per cent in Australia".

According to study, "The very low costs associated with new cardholder acquisition may indicate that insufficient resources are being applied to checking credit worthiness of applicants". It further added another reason possibly will be because of insufficient resources in cardholder’s bank accounts.

EDC informed debit cards are basically used for ATM withdrawals, to support cash-based transactions. Even in the credit card segment, India is having only 56 per cent active cards as against 80 per cent in Australia and 75 per cent in Singapore, the study revealed. EDC added in India the credit losses are also relatively high due to low level of transaction volume and value across the card base.