"Central bank has suspended the issue of credit cards due to large amount of money blocked in defaulted card holders. Since the bank found it difficult to manage the recovery, it has stopped issuing fresh cards," said a top official of Central Bank. Earlier, the Manipal-based Syndicate Bank had stopped issuing credit cards due to the same problem. "Central bank has stopped issuing credit cards temporarily because the bank could not effectively manage the default problem. As the bank is not in a position to control the defaulters, a decision has been taken to temporarily suspend fresh issue," sources said. The bank is now negotiating with a few agencies to introduce an online payment network infrastructure to monitor the credit data from merchantestablishments on a regular basis. "The bank will have to set up an infrastructure to closely monitor the credit card defaulters data and for this it will have to set up an online computerised communication network connected to all the merchant establishments," sources said. Central Bank has already been facing the problem of huge accumulated NPAs and the credit card defaults have added further to the amount of bad debts.

A basic problem facing all the banks issuing credit cards has been the growing number of defaults and industry sources say the level of default ranges from 15 to 20 per cent and banks have been increasingly using the service of recovery agents to handle erring card holders. A list of credit card numbers which are in default is being circulated among merchants and shoppers but due to the lack of an online data checking system connecting all the credit card issuers, merchants normally contact the issuing banks to verify whether the cards are in default. As it takes some time to trace thecredit card numbers from the big booklet circulated by the credit card issuers, even genuine customers feel embarrassed. In many cases, the defaulters go on a spending spree before the bank can detect the same. By the time necessary instructions are given to the concerned people, the damage is already done.

When credit cards were introduced, it was seen as a major business attraction by several public sector banks and many of them ventured into it. More public sector banks like the State Bank of India are also planning to enter the business. In 1990 when the card business was in its initial phase, there were only 3500 merchant establishments in India which accepted cards. After seven years, the number of cards in circulation has gone up to 9 lakh through just Visa International and more than a lakh merchant outlets accept cards as paying instrument. Mastercard has also issued an equal number of credit cards.

Some leading foreign banks have been very selective in giving credit cards due to large scaledefaults.