Sustainable and scalable cards business requires a judicious mix of “revolvers” and “transactors”.
Sustainable and scalable cards business requires a judicious mix of “revolvers” and “transactors”. Our analysis of the sector data suggests that HDFC Bank has managed to keep revolving loans at a disciplined 40%+, that of ICICI Bank has improved while for IndusInd Bank has deteriorated in the last 4-5 quarters.
The concept of “revolver” is core to generating interest income from cards business. “Revolvers” usually make the minimum monthly repayments or part payments, and therefore bear the interest rates.
“Transactors” pay the full balance off their card each month with banks having to fund the balances for 20-50 days depending on the billing cycle and transaction date. While banks with higher percentage of “transactors” will bleed money, banks with a very high percentage of “revolvers” run the risk of higher credit losses. Only a judicious mix between the two makes the business scalable and sustainable.
Axis Bank’s ratio has been volatile which we believe is a reflection of the bank’s strategy of enticing customers away from revolving their credit card loans on to EMI based personal loans. IndusInd Bank, surprisingly saw a material deterioration in the revolver rate. The latest entrant Yes Bank has so far circulated 3,123 cards as of July ’16 — should be mostly to internal customers and employees, we believe.