According to the monthly review published by Punjab National Bank, such unused cards are a major expense for banks as the cost of issuing a credit card is estimated to be around Rs 1,500 taking into account the cost of customer acquisition, application processing and card issuance.
The review points out that the delinquency in the industry is over 7% in India, which is higher than the global average of 3-4%. Since credit card exposure is an unsecured lending, recovery remains the biggest challenge for the card issuer because of percentage of defaulters, it says.
In addition, one of the main problems faced by the issuers is the low average spending per card. Many credit card holders tend to settle their dues just before the due date, not making use of the rollover facility. The review also says this does not augur well for the banks as only higher incidence of rollover is profitable for the issuing banks.
According to the PNB review, banks must devise various methods to try and identify potential risks before issuing cards. However, the review points out that there is a huge opportunity for growth as only 36 out of every 100 persons travelling abroad own credit cards.
The main players in the industry include Citibank, ICICI, SBI Card and HDFC. The average interest rate charged by the companies is about 2.5%.