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Relaxation in credit card lending standards by banks declares fed report

[Monday, December 13th, 2010]

The report of the Federal Reserve Bank for the second quarter says that the banks have slightly relaxed the conditions for issuing the new credit cards while it remains to be a tough time for the consumers already holding the credit cards. However, for at least an year things would not be so good both for fresh applicants as well as for those already holding the cards.

Due to the financial recession for many years the banks had some reservations in giving new credit cards. Now, the Fed Reserve indicates that, as per the recent survey conducted by the senior loan sanctioning officers of the banks, the banks were ready to approve the applications for new credit cards and most of the large banks reported to have relaxed the standards set for issuing new credit cards. This is really an important move in processing the applications for issue of new credit cards.

In an e-mail of Mr. Anuj Shahani, Director of Synovate, which is a research firm of direct-mail marketing, has said that in view of improvement in economy they have been witnessing relaxation in credit standards. Also the Mail Monitor of Synovate shows that there has been almost 25 per cent rise in the credit card offers during the third quarter when compared to the second quarter.

During an exclusive survey, the Fed Reserve asked the banks with constricted lending standards as to when they might start lending more freely. Most of the banks have replied that it would take some time to relax the lending standards, however, it would not be earlier to 2012 and they were also non-committal as to the time frame for relaxation in lending standards in case of sub-prime borrowers. In order to conduct the survey every three months, the Fed asked the executives of the bank about the changes in demand and supply of loans to households and businesses over the last quarter.

There has been a slight disparity between small and large banks in respect of extending various credits to business card holders. Most of the small banks have increased the credit lines to the business card holders whereas the large banks still have stringent credit lines. As a result it would be easier to get additional credit facilities in small banks while it is tough to get the same in large banks.

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