Increase in number of Indians deferring credit card payments

In the recent time the number of defaulters of credit card payments has increased. More and more Indians prefer to default of their credit card payments. As per the latest records of Reserve Bank of India over one year, credit card out standings have gone up by more than 50% to Rs 19,344 crore as on February 15, 2008. Moreover the growth of credit card outstanding is taking place at a time when there has been a control on overall credit growth. The growth in personal segment has been of mere 9% from February 16, 2007, to February 15, 2008.

In an interview with Sunday ET Reliance Money CEO Sudip Bandyopadhyay told that banks are already facing slow growth in personal loan segment in the backdrop of the imposition of stringent rules and slowing down of economy. He said, “This is why banks such as ICICI Bank are actively encouraging consumers to buy products through credit card route which is more cost-effective in comparison to the personal loan segment.”

In financial year ’06 the outstanding of credit card was 41%, which moved up to 47%, in financial year ’07. According to report the credit card outstanding as on March 2005 was just Rs 6,432 crore, it was one-third of total credit card outstanding today. In spite of low percentage of users of plastic money by Indians as compared to many other nationals there has been steep rise in the credit card outstanding in the country.

As per the research done by the Visa in Asia, Indians make just 1% of their total purchases through credit cards against 20% for the Koreans while global average hovers around 9%.

However Standard and poor’s Asia-Pacific chief economist Subir Gokarn, has a view that there is no correlation between personal loan and credit card outstanding. “There is such a small percentage of population that owns a credit card unlike the West where outstanding figures are reflective of systematic risk in the economy. The increase in outstanding is more of a reflection in the growth of credit card companies’ catchment’s area. After all, India is adding a young population to its labor force, which doesn’t believe in saving. For today’s youth, spending comes naturally,” he said.

According to internal estimates of Barclay card the Indian credit card market size at 23 million cards, and it has the potential to grow to at least 55 million cards by 2010-11.