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Banks seek relief from RBI on personal loan overdraft norms

Through the master circular, the central bank has asked banks to formulate a policy on issuing debit cards to customers with the approval of their boards.

RBI regulations
The RBI in April came out with the “master directions” on debit and credit cards, a document that consolidates instructions on rules and regulations.

Banks have approached the Reserve Bank of India (RBI) seeking relaxation of its recent guidelines to allow them to issue debit cards to customers having over-draft (OD) accounts that are used for extending personal loans, banking sources told FE.

Banks, under the aegis of the Indian Banks’ Association (IBA), have urged the RBI to permit them to issue debit cards in the OD accounts that are of the nature of personal loans, where the limits are sanctioned against salary, pension, deposits and government securities, and for personal consumption. They also want to issue debit cards where such a facility is extended to Mudra and Kisan credit card accounts holders.

The banking sources said since there was no restriction on the issuance of debit cards in this category of accounts earlier, a large number of customers have availed themselves of such a facility. The latest curbs, therefore, will cause inconvenience to these customers who don’t seek business loans through these OD accounts.

A personal loan overdraft typically allows a customer to withdraw an amount (up to a fixed limit) from her accounts at any time, and repay it later along with an interest. This makes it among the most preferred credit options for customers to meet various personal exigencies. The limit and the rate of interest vary, depending on the accounts.

“As per our understanding, there is now prohibition on the issuance of debit cards in this category of accounts where there was no restriction earlier. These are genuine grievances and the matter is being taken up with the RBI,” said a source.

The RBI in April came out with the “master directions” on debit and credit cards, a document that consolidates instructions on rules and regulations. Most of the rules in the circular were to be implemented from July 1.

In late June, the RBI extended the deadline for tokenisation of debit and credit cards by another three months to September 30 but didn’t grant the relief to banks on some other measures stipulated by it.

Through the master circular, the central bank has asked banks to formulate a comprehensive policy on issuing debit cards to customers with the approval of their boards.

It has directed banks not to issue debit cards to cash credit/loan account holders. “However, it will not preclude the banks from linking the overdraft facility provided along with Pradhan Mantri Jan Dhan Yojana accounts with a debit card,” the RBI said.

Banks are also mandated to undertake a review of their debit card operations on a half-yearly basis. The review must cover card usage analysis, including on cards that are not used for long durations and the inherent risks therein.

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