Indian credit card base is close to 2005-06 levels

Banks in order to get rid of their bad loans they have cut down on the issuing of credit cards. As a result in India credit card base has shrunk by 10 million cards to 18.31 million at the end of March 2010 from 28.31 million at the end of March 2008.

At present the number of credit cards is close to 2005-06 levels, when it touched the lowest in the previous five years at 17.32 million.

According to bankers the reduction is due to increased interest rates on card out standings, besides from those that have been cancelled and are inactive. At present, banks have stopped seeking business from the open market.

Saurabh Tripathi, partner and director of Boston Consulting Group said, “The irrational lending in the Indian unsecured market has corrected. The market has now become stable as banks strike a balance between profitability and growth.” “We will continue to see a drop in card numbers as banks become selective in sourcing customers. However, the spends will continue to rise as customers now pay an annual fee to hold a card and banks (are) also coming up with more value-based promotions.”

In the previous years, banks cancelled large number of dormant cards, which is a major reason for the shrinkage of the portfolio, said Sandeep Bhalla, business manager, cards, Citibank India. He added, “However, spends on cards have increased around 2-3% during the same time.” “Another reason for the dip in the number of credit card customers is the high level of delinquencies in the industry. However, the customer base in the industry has stabilized as the industry delinquencies have slowed down.”

An anonymous credit card head working with foreign bank said, “Non-performing loans, or NPAs, for the banking industry in the credit card business peaked in the fourth quarter of 2009. The NPAs have come down from the high of 18-20% to the low teens.” The dues which are not cleared for at least 90 days are designated as NPAs.

ICICI Bank Ltd, the largest credit card issuer in the country, has reduced the number of issuing cards to about five million from 8.5 million and stopped taking on fresh customers.

HDFC Bank Ltd is the second largest credit card issuer with 4.5 million cards. In January 2009, Citibank’s card based stood at 3.8 million, which reduced to 2.5 million by the end of December. At present it is having at least two million card holders.

“We are sourcing around 80,000 new card customers every month. The bank sources 85-90% of its business from bank customers. The rest comes from the open market generated by direct sales agents,” said Parag Rao, head, product, portfolio and service delivery, credit cards, HDFC Bank. “The delinquent cards ratio has gone up in the past one year and banks have closed those accounts. Banks have also been cleaning their credit card book in the past one-and-a-half years by closing down dormant cards.”

State Bank of India (SBI), have a joint venture of credit card with GE Capital Services, the largest issuer of private label credit cards in the world, said the card issuers have become strict and are cautious while issuing cards.

“At SBI Card, we have always believed in stringent credit assessment and underwriting,” said the spokesperson of SBI Cards and Payment Services Pvt. Ltd. “We now have more stringent credit checks with credit information bureaus/agencies including Credit Information Bureau (India) Ltd (Cibil).”

Cibil gather the credit history of individuals and assigns credit scores, which banks use before they sanction a loan or credit card.

“This short-term correction in the credit card base is a step in the right direction over the long term. It is part of the process of maturing for the industry in India,” added the SBI spokesperson. SBI Card has at least 2.5 million customers

However the average monthly spending on cards across the country is between Rs2,200 and Rs2,400, but only around 40% of users return their credit. If card holders clear dues within due date then banks does not earn any interest.

As per RBI records, the amount of out standing on credit cards has increased to Rs6,722.59 crore at the end of March 2010 from Rs4946.34 crore at the end of March 2009.

Card cancellations, specially driven by both defaults on payments and non-usage, are around 8-12% of the total card base. Banks block a card if payment is not made within 30 days and cancel it if no payment is made for 90 days.

“In the past one year, card companies’, including Citibank’s, focus has narrowed to the top 10-12 cities when it comes to sourcing credit cards as the usage is higher in these centres,” Bhalla said.