The Hindu Business Line : Banks stay choosy in issuing credit cards

CREDIT cards are being hawked at roadsides, over cell phones and at the offices, but strangely enough banks claim that they reject 45-50 per cent of all applications often leaving the applicant peeved with no specific reason cited for the humiliation involved.

``About 45 per cent of the applications sourced by our agents are rejected even in the midst of this fight of wallet space and challenge to heighten usage levels. Thereby, delinquency rates are kept under check with the industry average being 7-10 per cent, comparable to developed markets which are seen at about 5 per cent,'' said Mr V. Vaidyanathan, Senior General Manager, Retail, ICICI Bank, Mr Vaidyanathan insists the credit card business, one of the most profitable businesses in the retail space for large players, is no bubble set to burst.

This kind of elimination is facilitated with banks informally sharing credit history to enable blacklisting of customers through a loose consortium between credit card issuers. They maintain `negative files', a list of defaulting customers, but a more formal arrangement as in developed markets is yet to be work out, said a public sector banker.

The credit card market in India is projected to grow at the rate of 20-25 per cent per annum in the coming years in tune with the trajectory seen so far, say experts. Meanwhile, Visa, the international payment enabler of plastics, has seen the Indian market race far ahead of others in Asia-Pacific. Visa credit cards grew by 46.4 per cent to touch 5.04 million in India while the growth in Asia Pacific was only 6 per cent to 162 million for the third quarter of 2003 up from the previous year.

With heating competition amongst issuers, wooing the customer is the order of the day be it to acquire a fresh customer or those who already hold two other plastics. Waiver of the first annual fee, discounts in retail stores, personal loans tucked into the card are all add-ons being offered today. Co-branding and products catering to specific customer segments such as women, youth, and frequent travellers are other ways to increase usage levels, said Mr Shyam Srinivasan, GM-Credit Cards & Personal Loans, Standard Chartered Bank.

Despite the increasing competition, interest rates on credit card balances remain sticky and had been a point even of parliamentary debate. Bankers are of the opinion that interest rates have reduced a tad from 36 per cent two years ago to 33-30 per cent now, however, chances of it reducing further are not high.

It will fall only with increasing volumes and efficiency, says Mr Vaidyanathan. The high interest rates charged are a result of the high-risk element associated with unsecured credit and cross-subsidisation of charges, explained another banker.

There is a cross-subsidisation angle involved since the revolving interest charge at 30-odd per cent, the main revenue stream for a bank from this business, is applicable only to those customers who utilise the facility of revolving credit and thereby maintain an outstanding balance i.e., those customers who opt to pay up in a phased manner. About 50-70 per cent of cardholders are said to opt to delay payment and they subsidise the rest since the remaining customers who pay up full credit availed on the due date give the bank little returns.

The credit card business is a volume game and initially highly capital intensive. Initial infrastructure of online connectivity to merchant establishments and monitoring and recovery mechanisms typically add up to Rs 15-20 crore and breakeven point is possible only after at least 10 lakh cards are in force.

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