As loans get tougher, plastic gets consumers going

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New Delhi, Aug 4: ultimate losses on these receivables are often higher than those in the secured asset classes, the rating agency pointed out.

The credit card business’ exposure to low-income customers has been continuously rising. Loss levels in the low-income customer segment are currently estimated to be in the range of 7 to 9% and Crisil expects the asset quality to deteriorate.

It also expects loss levels in the range of 12 to 15% over the medium term, on account of over-leverage by customers, and the entry of players into under-banked geographies. “In the US , NPAs have risen mainly due to a housing slump, sinking income and employment. In India, the defaults are arising due to an increase in interest rates by banks,” Bhattacharya said, adding that these defaults are not unmanageable and banks can easily factor these in their books.

Gross non-performing retail loan assets would increase to around 4% of total retail loans by March 2009, up from 2.7% in March 2007, Crisil estimates. The rise in bad debts would affect top lenders like ICICI Bank and HDFC Bank, which comprise the major portion of the retail loan market.

ICICI Bank has already responded by setting stricter eligibility criteria for loans. The country’s largest private lender and the market leader in credit cards has also decided to restrict growth in the card business to 15% this fiscal, from the 25% growth earlier envisaged.