THE People's Bank of China has sent out a directive ordering state banks to stop their branches arranging illegal loans for customers through credit cards.
The warning came after the central bank discovered that the Zhuzhou branches of the Agricultural Bank of China (ABC) and People's Construction Bank of China and the ABC Guiyang branch were extending overdrafts to customers through their credit cards.
The Shanghai Financial News said yesterday the three banks' branches also tried to collect deposits in the course of their credit card operations, violating the rules set by the central bank.
To stop this back-door method of lending spreading, the People's Bank has ordered that the banks' branches end the practice immediately, or face appropriate penalties if they do not. It said any overdrafts extended to customers through credit cards must be reclassified as normal loans and should be recalled as soon as possible.
Other than the reserve deposits and guarantee placed by credit card holders, banks are not allowed to accept other forms of deposits.
Analysts said under the country's austerity drive to rein in inflation, banks were given a lending quota and were not allowed to lend indiscriminately to customers.
Under the People's Bank's instructions, only profitable and efficient enterprises should get priority in the second half of the year when they applied for loans.