Banks going slow on credit card hardsell

NEW DELHI: Amid fears of default rates going up in the wake of high inflation and global slowdown, banks and card issuers in India are going slow in issuing credit cards. Industry insiders indicate that the annual growth rate in the industry could slip to 20-25% by the end of FY09 from 30-35% being recorded over the last few years.

The ongoing credit crisis has prompted banks to take a cautious approach as far as lending is concerned. They are now increasingly looking at tapping the mid and high income group to ensure repayment.

“Banks are becoming careful about unsecured lending at this critical juncture when the economy is slowing down and prices are moving northwards,” said Standard Chartered general manager & head cards & personal loans RL Prasad. He added that the credit card division of StanChart will not be impacted as it caters primarily to the high and premium income group.

American Express vice-president (marketing) Amit Dutta said: “We cater to the affluent segment whose annual income is above Rs 8 lakh per annum. Repayment is generally a problem with those in the lower-income group.”

With rise in inflation, interest rates for home loans and other consumer loans have gone up. This has shrunk the disposable income of consumers and boosted card usage in India. Plastic money usage in India has gone up significantly by as much as 15% over the last few months as consumers have shifted their cash purchases to credit cards to defer payments.

Experts caution that while average spends on credit cards is on the rise, there are fair chances of default rates going up. “The number of customers defaulting on credit card payments is likely to increase by the end of this financial year and the industry may witness some strain on repayment in certain categories in the months to come,” said Credit Card Management Consultancy (CCMC) director Vijay Mehta.

At present, the default rates for payments is around 7.5-9%, according to a CCMC data. Consumers in India spend an average of Rs 4,000 a month on their cards. That is significantly less when compared to other Asian nations such as China, Japan, Korea and Thailand.

Indians spend just 1% of their total purchases through credit cards, while the world average stands at 9%. There are currently 25 million credit cards in the country of which only 40% is active.

Banks and credit card issuers fear default rates are expected to go up in the wake of high inflation and global slowdown.

They are now increasingly looking at tapping the mid and high income group to ensure repayment.
Credit card usage has gone up significantly as consumers have shifted their cash purchases to cards to defer payments.

News Source : http://economictimes.indiatimes.com/