Credit card numbers fall as banks turn alert
More than two years after a spate of defaults on personal loans forced lenders to turn cautious on unsecured advances, the number of credit cards, which are a source of unsecured loans, continues to shrink. The number of active credit cards in India has steadily dropped from a peak of 2.75 crore as on March 2008 to 1.88 crore in March 2010. Since then it has declined to 1.82 crore as on November 2010.
According to bankers, the shrinkage is because of a clean-up of the credit card portfolio by banks. ICICI credit card have shrunk their numbers by over 40% from peak levels and have turned conservative in adding new cards. Foreign banks which drove growth in initial stages are now cautious, while selling cards to those who are not their customers. The bank that is aggressively growing its card portfolio is HDFC Bank and some smaller players like Kotak Mahindra Bank.
Although card numbers have shrunk dramatically, spending on credit cards has been steadily increasing. The average spending per credit card has gone up 40% to over Rs 40,000, which is a very healthy growth rate. “The decline in card numbers is an outcome of a slew of developments, including issuers closing delinquent and inactive cards and going slow on new issuances,” said Uttam Nayak, country head, Visa India.
The other reason why card numbers have dropped is that under Basel II norms banks are finding that they have to set aside capital to the extent of credit limit they provide even if they are unutilized. To address this, banks are closing inactive cards and reducing credit limits. Similarly, any individual who has multiple credit cards will get a weak credit profile from the credit rating agencies which will portray him as being excessively leveraged.
Industry officials estimate that HDFC Bank is nearing leadership position, followed by ICICI Bank and SBI Cards. Citibank and StanChart Bank are among the other dominant players in the credit card business. Although HDFC Credit Card has been the most aggressive in card issuance, its card customers are predominantly accountholders in the bank.
Strangely, even as card numbers shrink, an increasing number of retail outlets is accepting card payments. Today, over 5.25 lakh establishments have swipe machines for accepting card payments and the number is expected to double. A large volume of transactions are taking place using debit cards which are picking up not just in metros but also in smaller cities, said Amrish Rau, country head, First Data, the largest processor of credit card transactions in India. He adds that it is not increase in card numbers that is driving acceptance, but rather the customer choice. “We have done a survey of merchants and have found out that they are willing to acceptance payments in cards if they find lot of customers demanding this option,” says Rau, pointing out that the debit card transactions are slowly gaining.
There is consolidation in the co-branded card space as well. Some banks which had gone overboard issuing cards to customers who walked into a department store or those driving into petrol pumps have cancelled several of these cards. Banks prefer cards with high-end partners such as airlines and while they provide double their benefits they are now introducing annual charges on all such cards.
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