From the past few months with the rise in inflation, and economic recession there has been increase in the number of defaulters of credit card holders. Most of the credit card holders stopped paying there credit card bills. Therefore not only the number of credit cards use has come down but also the spending through credit cards has dropped.
Card issuing companies have put credit controls in view of rising negligence levels have led to fall in spending through credit cards by 7.85 per cent to Rs 5,171.06 crore in January 2009, as against Rs 5,611.38 crore during April 2008. While in the corresponding period last year the spending had gone up by 28 per cent.
As per RBI data released earlier, the combined credit card outstanding had gone up by almost 70 per cent in the last one year. At the end of December 2008 the out standings had risen up to Rs 29,359 crore at the end of December 2008 from Rs 17,306 crore in the corresponding month of 2007. By looking at the figures it is clear that many card holders were rolling over credit.
According to the retail banking head of a large private bank, “It may be partly due to the fall in card population, but the average spend is also coming down.”
While a public sector bank executive added, “Due to the economic downturn, people are restricting unnecessary spending”.
Sujan Sinha, senior vice-president for retail banking at Axis Bank, pointed out, “Consumer spending on almost all fronts has come down, and there has also been a lot of culling in the industry”. Moreover banks have also cut down the issuing of credit cards by 282,000 during January to check losses arising from the portfolio.
As per latest data released by the Reserve Bank of India, the credit card holder number reduced by 8.62 per cent to 25.87 million at the end of January this year, as against 28.31 million at the start of the financial year. Whereas in contrast to this in April-January 2007-08, the number of credit cards rose by 13.32 per cent.
Axis Bank’s Sinha explained, “Credit cards of marginal customers and defaulters have been cancelled, and credit appraisal mechanisms have also become more elaborate. NPAs for almost all players in the industry have risen”.
Standard Chartered Bank’s country head for retail banking Shyam Srinivasan told that the number of credit card holder of his bank is more or less flat and do not aim to step up activity in the current economic situation.
For some banks the non-performing assets in the card segment is raising to over 20 per cent, as against 5-6 per cent during the last financial year, thus card issuers are more satisfied dealing with people who pay their bills on time.
For instance, in case of SBI Cards, according to rating agency Icra NPAs were estimated to 21.22 per cent as on September 30, 2008. To handle this, the company chose for foreclosures and settlements, due to which its card base has shrunk from 3.4 million to 3 million in the last six months. On asking about this the SBI Cards refused to comment.
Besides the other measures, the basic qualifying parameters have also been tightened. The threshold salary limit has been raised from Rs 8,000-10,000 to Rs 20,000-30,000. Bankers say they are more comfortable with customers with a higher salary base.
