CREDIT AND DEBIT CARD

Dr. Vinosh Peter K.V.

ContentsMerchant Banking in IndiaSetting up and management of merchant banks in IndiaCategories of Merchant BanksCredit Card and Debit CardTypes of Credit CardDifferences between Credit card and Debit card

Merchant Banking in IndiaPrior to the enactment of Indian Companies Act,1956, managing agents acted as merchant bankers. They acted as issue houses for securities, evaluated project reports, provided venture capital for new firms etc. Few share broking firms also functioned as merchant bankers.With the rapid growth in the number and size of the issues made in the primary market, the need for specialized merchant banking service was felt. Grindlays Bank (foreign bank) opened its merchant banking division in 1967, followed by Citibank in 1970. SBI started its merchant banking division in 1972 and it followed up by setting up a fully owned subsidiary in 1980, namely SBI Capital Markets Ltd.

The other nationalized banks and financial institutions, like IDBI, IFCI, ICICI, Securities and Finance Company Ltd., Canara Bank (Can Bank Financial Services Ltd.), Bank of India (BOI Finance Ltd.) and private sector financial companies, like JM Financial and Investment Consultancy Services Ltd., DSP Financial consultancy Ltd. have also set up their merchant banking divisions.

With over 1,100 merchant bankers operating in the country, the primary market activity is picking up. Merchant banking services have assumed greater importance in the present capital market scenario. With the investor becoming more cautious and discerning, the role of merchant banker has gained more prominence.

In India, apart from the overall control by the RBI, merchant bankers operations are closely supervised by the SEBI for their proper functioning and investor protection.

Setting up and management of merchant banks in India In India a common organizational set up of merchant bankers

to operate is in the form of divisions of Indian and Foreign banks and financial institutions, subsidiary companies established by bankers like SBI, Canara Bank, Punjab National Bank, Bank of India, etc. some firms are also organized by financial and technical consultants and professionals. Securities and exchanges Board of India (SEBI) has divided the merchant bankers into four categories based on their capital adequacy.

Each category is authorized to perform certain functions. From the point of Organizational set up Indias merchant banking organizations can be categorized into 4 groups on the basis of their linkage with parent activity. They are:

Institutional Base:-Merchant banks function as an independent wing or as subsidiary of various Private/ Central Governments/ State Governments Financial institutions. Most of the financial institutions in India are in public sector and therefore such set up plays a role on the lines of governmental priorities and policies.

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Banker Base:-These merchant bankers function as division/ subsidiary of banking organization. The parent banks are either nationalized commercial banks or the foreign banks operating in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market.

Broker Base:- In the recent past there has been an inflow of Qualified and professionally skilled brokers in various Stock Exchanges of India. These brokers undertake merchant banking related operating also like providing investment and portfolio management services.

Private Base:- These merchant banking firms are originated in private sectors. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill oriented specialized services to their clients.

Categories of Merchant BanksMerchant bankers are classified into four categories according to the SEBI (Merchant Banking) Regulations 1992. These are as follows:

(a) Category I: To carry on any activity relating to issue management and act as adviser,

consultant manager, underwriter and portfolio manager for capital issues.

(b) Category II: To act as adviser, consultant, co-manager, underwriter and portfolio manager

for capital issues.(c) CategoryIII:To act as underwriter, adviser, and consultant

to an issue.(d) CategoryIV:To act only as adviser or consultant to an

issue.

Credit Card and Debit Card

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holders promise to pay for these goods and services.

Credit card is a suitable alternative for cash payment or credit payment or deferred (instalment) payment. It is used to execute those transactions which are compiled through electronic devices like a card swapping machine, computer with internet facility, etc.

Features of credit cardAlternative to cash Credit card is a better alternative to cash. It

removes the worry of carrying various currency denominations to pay at the trade counters.

Credit LimitThe credit cardholder enjoys the facility of a credit

limit set on his card. This limit of credit is determined by the credit card issuing entity (bank or NBFC) only after analyzing the credit worthiness of the cardholder.

The credit limit is of two types, 1. Normal credit limit, and2. Revolving credit limit.

Normal credit limit is usual credit given by the bank or NBFC at the time of issuing a credit card. Revolving credit limit varies with the financial exposure of the credit cardholder.

Aids payment in domestic and foreign currency Credit card aids its cardholder to make payments in any

currency of choice. In other words, it gives its holder a unique facility to make payments either in domestic (native) currency or if necessary, also in foreign (non-native) currency, that too as and when required.

Record Keeping of all Transactions Credit card issuing entities like banks or NBFCs keeps a

complete record of all transactions made by their credit cardholders. Such a record helps these entities to raise appropriate billing amounts payable by their cardholders, either on a monthly or some periodic basis.

Regular ChargesRegular charges are basic routine charges charged by the credit card issuing entity on the usage ofcredit card by its cardholder. These charges are nominal in nature. The regular charges areprimarily classified into two types, viz.,

1. Annual charges, and 2. Additional charges.Service Tax

Service tax is included in the total amount charged to the credit cardholder. This mandatory service tax imposed by the government also increases the final end cost bared by a credit cardholder.

Elements of Credit Card The front side of a credit card shows following details: Logo of issuing entity. Logo of payment processor. Hologram. Expiration date. Cardholders name. Card number. Individual account identifier nu Issuer identifier number (IIN). Embedded microchip. Major industry identifier (MII). Issue date Bank identification number (BIN).

The back side of a credit card shows following details:

Security code (card verification number). Magnetic stripe. Signature panel. Additional information.Types of Credit CardStandard Credit Card: This is the most commonly used.

One is allowed to use money up to a certain limitPremium Credit Card: This has a much higher bank

account and fees. Incentives are offered in this over and above that in a standard card. Credit card holders are offered travel incentives, reward points, cask back and other rewards on the use of this card

Secured Credit Card: People without credit history or with tarnished credit can avail this card. A security deposit is required amounting to the same as the credit limit

Limited Purpose Credit Card: There is limitation to its use and is to be used only for particular applications.

Charge Credit Card: This requires the card holder to make full payment of the balance every month and therefore there is no limit to credit.

Specialty Credit Card: is used for business purposes enabling businessmen to keep their businesses transactions separately in a convenient way

Prepaid Credit Card: Here, money is loaded by the card holder on to the card. It is like a debit card except that it is not tied up with a bank account.

Advantages of credit card They allow you to make purchases on credit without

carrying around a lot of cash. They allow accurate record-keeping by consolidating

purchases into a single statement. They allow convenient remote purchasing

ordering/shopping online or by phone.. They are cheaper for short-term borrowing interest is

only paid on the remaining debt, not the full loan amount.

Many cards offer additional benefits such as additional insurance cover on purchases, cash back, air miles and discounts on holidays.

Disadvantages of credit card You may become an impulsive buyer and tend to

overspend because of the ease of using credit cards. Lost or stolen cards may result in some unwanted

expense and inconvenience. The use of a large number of credit cards can get you

even further into debt. Using a credit card, especially remotely, introduces an

element of risk as the card details may fall into the wrong hands resulting in fraudulent purchases on the card.

Debit cardA debit card (also known as a bank card or check card) is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution. The card can be used as an alternative payment method to cash.

Debit card and ATM cardsObviously there is a difference between an ATM card and a debit card. An ATM card only allows you to draw cash from your account through an ATM (Automated Teller Machine). A debit card allows you to make financial transactions (purchases mostly) without paying cash. The payment is made by swiping your debit card in a machine at a shop where you made the purchase. The value of your purchase is automatically deducted from your balance in your bank account. Nowadays, banks provide ATM debit cards, which can be used for both the purposes mentioned above. Similarly, ATM credit cards are also available.

Differences between Credit card and Debit cardCredit card Debit cardIt is a pay later product It is pay now productThe card holder can avail of credit for 30- 45 days

Customers account is debited immediately

No sophisticated communication system is required for credit card system

sophisticated communication system is required for credit card system

Opening bank account and maintaining required minimum amount are not essential

Opening bank account and maintainingrequired amount are essential

possibility of risk of fraud is high

Risk is minimized through using PIN

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