Banks slowed down on selling credit cards, learnt lesson from the credit crunch

Banks have slowed down on selling credit cards. The banks have learnt lessons from the credit crunch therefore banks are not ready to vow for unsecured credit. Moreover at least one bank is thinking of stop issuing credit cards completely. Last year when several banks and financial firms saw rise in delinquencies, they had reduced their exposure to the personal loan segment.

According to some bankers the present uncertainty grew due to "aggressive" issuance of cards by certain banks. Shameek Bhargava, managing director, cards (Asia Pacific), Deutsche Bank said, "Often this issuance was not backed by conventional forms of credit appraisals". "And it was targeted at a base of prospective customers who were already holding credit cards of one bank or the other creating over-leveraging of customers."

Often, on new card banks offered free offers such as waiving off annual charges, and issuing an additional card (add-on) for free. Due to this banks were able to attract more customers but most of the customers used a primary card, while the other cards remained unused, in their wallets, this increased the operating cost of the respective banks, informed an industry person.

In India private banks were ahead in the credit card movement, which prompted the public sector banks to join the bandwagon.

In view of this many nationalized banks and smaller private banks issued cards to their account holders while private banks offered the facility to any one who was covered under their credit card issuance norms.

But now nationalized banks have slowed down in issuing the credit card. Nagammal Reddy, managing director, Tamilnad Mercantile Bank pointed out, "We have around 5,000 card holders. While we would like to double this number, we won't aggressively market our offering like private banks to meet our target". While the Indian Overseas Bank is thinking of completely withdrawing from the credit card business. A senior official from the bank said, "There has been some talk of withdrawing from this business altogether". According to senior bank official from the bank, "Till such time, we will run the business as it is and won't be aggressive in acquiring new customers". IOB is having around one lakh credit card holders who are also account holders with the bank.

However most of the banks are planning to increase their fee-based income through banassurance and third party product offerings such as mutual funds, rather than completely being dependent on interest income.

Bhargava stated, "It is likely that the (credit card) industry will witness the comeback of fees in some fashion. This will also benefit customers in controlling the amount of credit card debt they can sustain".