The Hindu Business Line : Credit card business growth slows down

The growth in new credit card accounts has been lower at 18 per cent in the just concluded fiscal (until February), compared to 33 per cent in 2006-07, according to RBI data. The total card base in the country currently stands at 26 million.

“While earlier, banks would extend loans to customers with a minimum annual income of Rs 80,000, they have now increased this to a minimum of Rs 1.2 lakh. Banks are also asking for the PAN card and strictly following other ‘Know Your Customer’ procedures before giving credit cards,” said Mr Tarun Bhatia, Head-Financial Sector ratings, CRISIL.

ICICI Bank, the largest credit card provider in the country (9 million credit cards), has shown a growth of around 20-22 per cent, lower than the average growth of 40 per cent it has seen in the past three years.

“The overall slowdown in retail loans has also rubbed off on the credit card segment,” said Mr Sachin Khandelwal, Head-Cards Product Group, ICICI Bank.

The interest rates on various segments in the retail asset portfolio have seen a steady rise and, therefore, the outflow in terms of an EMI (equated monthly instalments) has also gone up, said Mr Parag Rao, Senior Vice-President, Head-Product and Portfolio Management, Credit Cards, HDFC Bank. “This has put pressure on individual customers which in turn has increased the default rates in the industry,” he said.

Bankers said they were becoming increasingly cautious about lending in these segments because of the high rates of delinquency.

The default rates on credit cards have moved up by almost 150-200 basis points this year to 11-12 per cent in 2007-08, against 9-10 per cent in 2006-07, according to industry estimates.

“The new issuance of cards has seen a slowdown because of credit losses,” said Mr Neeraj Swaroop, Regional Chief Executive, India and South Asia, Standard Chartered Bank.

Standard Chartered Bank has not been aggressive about increasing the number of cards issued but has instead focused on increasing spends on each existing card.

Credit bureau data

“Customers are highly over-leveraged and are given loans 20-30 times of their annual income. Banks are not making good use of credit bureau data,” said a senior official at a foreign bank.

Analysts point out that banks which are expanding aggressively were trying to reach out to customers by either offering them a credit card or a personal loan.

“Defaults have started spiralling because banks have gone into Tier II and Tier III towns as well as the lower-income segments. The average cards per user have also increased,” said Mr Bhatia.