RBI data shows while retail loan growth moderated, credit card advances saw a 70% increase during the year up to December 19, 2008. With banks tightening credit disbursement, credit card holders are preferring to roll over their dues and are even swiping their cards for high value purchases like consumer durables.
Fearing large-scale credit card defaults, banks now have been wary of issuing fresh cards and in many cases have even drastically reduced the credit limit of cardholders. Anecdotal evidence suggest that out of the Rs 29,000 crore total outstanding on credit cards as on December 2008, total impaired credit would be to the tune of Rs 4,000 crore and has actually deteriorated the most since October last year.
More worrying is the fact that about 20% of the 35 million credit card users in the country are repeat defaulters, switching from one card to the other. Though transfer of credit from one bank to another can be a short-term relief for the card user, it leads to perpetual default in the long run. The increasing exposure to higher risk customers is mainly through personal loans and credit card receivables as these are unsecured. Till a year ago, direct selling agents of most banks, in order to increase the market share, targeted the same set of people and issued multiple cards of the same bank under different branding.
Credit card delinquency hurts banks the most, as it is still a low-margin business in India because of low income per card and the high initial investments. Indians spend just 1% of their total purchases through credit cards while the world average is around 12%. Moreover, high interest rates charged by banks on credit cards, which can range anything between 25% to 50%, have been a major dampener for the growth of credit cards in India and the hidden charges levied by banks discourage credit-worthy potential card users in India.
Now, with banks going slow on issuing fresh credit cards, payment made through debit cards is rising. During the first seven months of the current fiscal, payments made through debit cards recorded over 80% increase as compared to the same period last year and banks are even offering incentives like cash back and high incentive points to debit card users.
?saikat.neogi@expressindia.com