PNB to join credit card bandwagon

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New Delhi, Aug 16 : At a time when ICICI Bank, the number one player in the fast-growing Indian credit card market, has cut its 2008-09 growth targets in the business from 25% to 15% due to rising delinquencies, Punjab National Bank (PNB), the country’s second largest public sector bank, is about to launch credit cards for its massive customer base of 3.5 crore. PNB is in talks with Visa Inc, the global retail electronic payment network, to start its independent credit card business and is likely to launch the service by October.

At present, the bank does issue co-branded credit cards in collaboration with Hongkong & Shanghai Banking Corporation (HSBC), but it has not been successful. “After the launch of our independent credit card business, the tie-up with HSBC would be discontinued,” chairman and managing director, PNB, KC Chakrabarty told The Financial Express .

Earlier, there were talks that PNB may launch a subsidiary for the credit card business on the lines of State Bank of India. According to reports, PNB had roped in Ernst & Young as a consultant to finalise a potential partner for the credit card business. But a bank spokesperson denied such talks and said, “We have our own department for these services”.

Credit card business is considered lucrative and almost all major banks provide this service. ICICI Bank, HDFC Bank, SBI and Bank of India are some of the key players in this portfolio. There are over 40 million customers in the segment at present and the market is growing at 35-40% a year.

But with more credit card use, the chances of default on repayment also increase. Reserve Bank of India has already sounded an alarm on credit card defaults and cautioned banks on the same. RBI deputy governor V Leeladhar earlier this month raised concerns on deteriorating credit quality in the banking system.

According to central bank data, credit card outstanding had surged to Rs 26,500 crore at the end of May 2008, up 87% from a year ago, when it grew by 45%. To put that in perspective, banks’ personal loan portfolios saw growth moderating from 23.9% at the end of May 2007 to around 16% till May-end 2008.

Simply put, with banks being picky about giving out personal loans, consumers seem to be opting for the relatively easier-to-access plastic credit, even if it’s much more expensive. This comes with its own risks, as the RBI has pointed out.

Considering these risks involved in the credit card business, Punjab National Bank would offer the service to its own customers. “Credit card business is a risky one. We are going to issue credit cards only to our own customers,” Chakrabarty said. The bank has over 3.5 crore customers at present.

For the debit cards issued to its banking customers, PNB is linked with MasterCard, another international payment gateway. “We have a tie-up with MasterCard for debit cards and with Visa, our customers could access a much larger global network of merchant outlets,” PNB’s executive director JM Garg said. A PNB debit cardholder can, at present, purchase goods at 99,270 merchant establishments across the country.

The bank is also going to start ‘Cash Management Services’ in the next three months. The services will allow its corporate clients to pool funds spread across the country at the branch of choice within two hours.

“Under these services, the bank would collect the receivables from representative or business associates at the core banking branches across the country and bring them at a single outlet. The funds could then easily be remitted from this branch,” Garg said.