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The credit card business has been slowing, down to 18 per cent in 2007-08 against the 33 per cent growth witnessed in the previous year. The slow rate of growth has been attributed to the increase in delinquency rate and the consequent cautiousness adopted by the credit-card issuers.

The credit card industry has been flourishing on the human tendency to enjoy the fruits of credit without paying interest for the intervening period from the date of purchase to the normal scheduled date of payment. The income of the industry comes from the traders’ margin and the usurious delinquency charges are charged on the customers. The expenditure includes operating expenses, merchant banker’s charges, transaction network charges, interest for the intervening period and losses arising out of delinquency and frauds.

Due to lax enforcement laws in recovering the small amounts in India, the expenses outweigh the income in the industry, leading to losses. It probably makes sense to promote more debit cards with additional freebies, along with credit cards as the bad loan component will be absent in the debit cards. Besides, it will also act as a check on the spending habit of card-holders.

P. E. Muthu Mumbai

More Stories on : Letters | Credit Cards & Debit Cards

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