Credit card sector plagued by random distribution

New Delhi, Jan 5 | Updated: Jan 6 2006, 05:59am hrs
The level of bad assets in the credit card sector, currently touching 9%, is primarily due to the focus of the companies in increasing market share through arbitrary distribution of the product, according to the Credit Card Management Consultancy (CCMC). CCMC said that card issuers must re-orient their focus and concentrate on usage which is still very low in the country.

That apart, consumers often have multiple cards which leads to non usage of the product. The card issuers must now devise ways to encourage customers to make their purchases using their cards. Unfortunately, most companies focus on expanding the overall credit card market, often with unsolicited cards as well, Vijay Mehta, director, CCMC, said.

Most issuers have resorted to distributing cards without proper assessment of repayment capacity. At present, there are about 13 million credit cards in the Indian market. Recoveries, however, depend on the individual banks.

The turnover in terms of spends is estimated at Rs 175,000 million. The interest rates are between 1.75% to 2%. However, in countries like the US and the UK, which are mostly cashless societies, there is no interest charged on usage of credit cards.

Mr Mehta said that ideally the level of bad loans should not be more than 2% of the annual turnover.

Meanwhile, the Reserve Bank of India has also set up a separate committee to keep track on the plastic money industry. The central bank has also indicated its discomfort regarding the high interest rates. However, it has said that it will not interfere with the card issuers on fixing their interest rates.

Mr Mehta also said that the interest rate, in the sector is substantially high compared to other sectors like car and housing loans.