Financial Express: Finally, global credit cards are here

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Finally, global credit cards are here

Nivedita Mookerji

International credit cards can now be used more freely than before for the Reserve Bank of India has allowed resident Indians to use add-on credit cards issued to their NRI relatives. So, it's happy times for those with NRI links.

Alpana Killawala, general manager, Press Relations, RBI, explains what is new in the latest notification: ``Earlier, the Reserve Bank's approval was required to be obtained by residents for the use of add-on international credit cards provided to them by non-residents. The requirement of prior approval has now been dispensed with.''

What made RBI take the step? Says Killawala: ``The liberalisation was brought about at RBI's own initiative and is within the scheme of things to liberalise exchange control regulations.''

On RBI stipulations for the use of NRI add-on cards in India, Killawala says: ``The only stipulation for add-on NRI cards is that reimbursement in respect of drawals against such add-on cards by residents should be provided by the non-resident out of his foreigncurrency resources. And remittance from India by residents for this purpose will not be allowed.''

Calling it a welcome move, Vijay S Mehta, chief consultant, Credit Card & Management Consultancy, says: ``Issuing add-on cards to relatives of NRIs is another step towards the imminent Global Indian Credit Card, which would be valid not only in India and Nepal, but all over the world.''

Does Mehta, who is an expert in the business of credit cards, foresee any major obstacles in issuance of such cards? ``No,'' he says, but adds that recovery in some cases could pose a problem. For instance:

Recovery in cases of profligate add-on card spending;

Add-on cardholders, who do not feel financially responsible for such cards, even as they (add on cardholders) may not be footing such bills/purchases.

Elaborating on the modus operandi, Mehta says: ``The monthly bill will be raised in the NRI's name (and possibly a copy forwarded to the add-on cardholder) for settlement by the NRI through authorisedforeign exchange dealers by remittance to the card-issuing organisation for the card bill outstandings undertaken by the add-on cardholder. This will involve foreign exchange inflows into India.''

On whether there will be a problem of acceptance of these cards at stores and elsewhere in India, Mehta feels there should be no resistance. ``Like any other domestic credit card, this add-on card may be used for purchases in India, etc, without the merchant offering any resistance to acceptance at the outlets or being able to differentiate between the two cards (domestic card and add-on card).''

Also, he adds, the verification agency hired by card issuers will check the antecedents of the add-on card applicant just as they would have checked in the case of a domestic card applicant. ``As the responsibility for settlement of the purchases lies with the NRI, the card issuing organisation will also ferret out the credibility of the NRI and the add-on applicant based on its in-house credit/risk criteria andqualitative perceptions,'' Mehta states.

Among the issuers, who will be the gainers? Says Mehta: ``Citibank, ANZ Grindlays, Standard Chartered, Hongkong Bank, American Express and SBI would appear to be the major gainers in view of their cachet, international reach and network.''

Mehta does not foresee a major rush of add-on card applications because the majority of applicants, who are financially independent, will be able to acquire domestic cards on their own merit in the country. ``However, add-on applicants largely financially dependent on NRI income will find this a major convenience -- one that will provide them with additional financial cushion and a friendly neighbour (the card) in case of emergencies.''Another advantage of the NRI add-on card is the large credit limit. Although difficult to categorise credit limits granted abroad by different card issuers, internationally borrowing limits/credit lines granted by card companies would average between US$ 2,000 to US$ 15,000, says Mehta. On theother hand, credit limits in India vary between Rs 10,000 and Rs 200,000.

According to Mehta, the vast dichotomy between limits granted in India and abroad is owing to the gulf/variance in income levels and degree of automation. ``But add-on card limits fall within the primary cardholder's granted overall limit, both in India and abroad.''

Talking of stipulations, Mehta reiterates the RBI view. He says: ``NRI cardholders must settle card payments on behalf of the add-on cardholders only through foreign currency accounts held abroad, and all such remittances will have to be done through an authorised foreign exchange dealer/bank, and not locally.''

Finally, in the early days of such an issuance, Mehta lists the pros and cons of the NRI add-on credit cards. First the pros:

Inward remittance of foreign exchange;

Easy instrument to garner NRI deposits;

Incentive for NRIs to pick up local spending through official channels;

A useful tool/gift by NRIs and cardspending);

Will spread the ethos of the credit card business in even far-flung areas all over the country, thereby contributing to the indirect growth of the domestic card culture and may eventually lead to faster acceptance of other variants of plastic money (Debit Card, ATM Card and Smart Card) in India.

The cons:

In case of excessive spending, recovery process may be prolonged;

In case of lost/stolen cards, a three-way dispute may emerge among the NRI, add-on cardholder, and card issuer/bank on the question of ownership/liability to card outstandings (even though agreement/terms booklet accompanying the card at the time of issuance may have clearly spelt out the effect of such an occurrence);

In case of card credit limit being crossed/exceeded, any non-authorisation/non-acceptance of a transaction may lead to bitterness between the NRI and card issuer.

Net Express

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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.

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