The Hindu Business Line : Credit card business set for over 30% growth

Mumbai, July 18 Bankers expect their credit card business to grow by over 30 per cent in 2007-08. Credit cards have seen a gradual growth from about 7.1 million in 2003 to 22.6 million in 2007. There has been approximately a 30-40 per cent growth in the number of cards in force and also the amount of annual spends on cards on a year-on-year basis.

The number of cards in force this year is about 30 per cent more than that in 2006, which was at about 17.5 million.

“Wider acceptance of cards by merchants and with more and more banks, both foreign and public sector units coming in, this sector is getting more aggressive,” says Mr Sachin Khandelwal, General Manager, Head-Cards Product Group, ICICI Bank Ltd.

Bankers attribute the increasing acceptance of cards to the fact that it does not require a high capital deployment. Prompt payment by most consumers is an added advantage, they feel.

Luring customers

“Innovative schemes and offers to cardholders, along with various partner merchants and circulation of more co-branded cards, with added benefits on specific usages such as airlines and fuel cards, have benefited the customers encouraging more and more people to use it,” says Mr Khandelwal.

ICICI Bank has issued almost 7.65 million cards till date, which is about 34 per cent of the total number in circulation at present.

The rate of interest charged by banks on a credit card varies usually from 2.95-3.5 per cent per month though some banks do give lower rates to some specific customers.

Low penetration

However, senior bankers feel that very few Indians carry a credit card, with the penetration level being as low as over 2 per cent while that for comparable economies, it stands at 10-12 per cent.

Mr Khandelwal feels that though the penetration level is lower, the spend pattern of Indians is more or less in synch with the international spends, with travel, entertainment, retail shopping and jewellery being the top categories where credit cards are used.

Widening reach

Cards are witnessing a gradual expansion to more cities with more segments getting covered and with more and more customers preferring to make credit card payments to cash.

Talking about the penetration of cards in Tier-II and Tier-III cities, Mr Khandelwal says, “We have reached almost 150 cities where cards are issued and accepted. The key challenge in this area is to get people to change their mind-set and make them understand the benefits of using the free credit period. It is also important to get more merchants in smaller markets to accept cards without charging anything extra for card usage.” HDFC Bank has issued 30 lakh cards as on March 31, 2007. About 65 per cent of the cards are from Tier-I cities, 20-22 per cent from Tier-II cities while the rest is from Tier-III cities.

Big potential

According to Mr Neeraj Jha, Head-Corporate Communications, HDFC Bank, “There is tremendous potential in the Tier-II and Tier-III cities, but lack of awareness, logistics and high cost of acquiring a merchant establishment are the major stumbling blocks which the banks have to overcome.”

“India is still under penetrated as far as cards are concerned. Today the country has less than 1 per cent of personal consumption expenditure (PCE) happening on cards. This compares very poorly with the global average of 5 per cent PCE on cards and is miniscule when compared to the 15 per cent PCE of developed nations,” says Mr Raman Khanduja, Product Manager, Credit Card Division, Centurion Bank of Punjab.

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