| Credit cards continue to shrink | |
| BS Reporter / Mumbai June 12, 2009, 0:47 IST | |
Executives say trend likely to go on for some time.
After almost three million credit cards were taken out of circulation in 2008-09, the base continued downward in the first month of the current financial year, indicating the industry is still in a culling mood.
Data released by the Reserve Bank of India (RBI) showed the number of cards fell by 332,000 in April to 24.38 million.
Many issuers have started blocking inactive and dormant cards, which carry a cost for the bank in the form of billing and postage charges. In addition, there is a risk that such cards will be used as a last resort when the customer is faced with financial troubles.
“During the growth phase, many banks issued cards to customers who ended never using them. Now, most issuers are in an consolidation phase and have become more stringent with inactive and dormant credit cards because these are high-risk lines,” said Ravi Subramaniam, head of consumer assets and credit cards at foreign lender HSBC.
Stung by delinquencies on their credit card portfolios, most banks have made it a policy to issue new cards only to customers with whom they have an existing relationship. “This strategy has been adopted across the board and I don’t see it changing in the near future,” a senior executive of a private sector bank said.
According to R L Prasad, head of credit cards at foreign lender Standard Chartered Bank, issuers are rationalising their credit card portfolios and this trend will continue for the next few months. “But I think the quantum of reductions will start coming down as the industry situation improves,” he added.
Many banks have shifted focus to premium segment credit cards, where delinquencies have been lower, and the competition in this space is likely to heat up.
“With competition in this space likely to increase, the value proposition will be the crucial factor and issuers will pack more and better features into their card offerings. And some of these services will come with a fee. Our experience has been that customers are ready to pay for services if they see value in them.” said Stanchart’s Prasad.
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