Fewer customers revolving their credit card dues

Awareness about need to have good credit record prompts users to pay on time

Indian credit card consumers are no longer revolving their credit dues, with most customers repaying fully. This is due to the fact that banks are improving their credit card sourcing, as well as increased awareness among customers about the importance of a good credit record, bankers say.

This was a healthy trend, Jairam Sridharan, president and head (consumer lending and payments), Axis Bank, said at the launch of the bank's new co-branded credit cards.

"The revolvement rate has come down over the years - from around 50 per cent in 2005 to 15 per cent now. The credit card base has eroded sharply and a lot of customers who revolved payments have left the industry. Now, cardholders are also more aware of the importance of a good credit history and many of them prefer to pay their dues before expiry of the interest-free credit period," Sridharan said.

Axis Bank's new credit card, co-branded with Lufthansa's Miles & More, would allow customers to use the points on the card to buy tickets on airlines that are part of the Miles & More programme.

According to Pallav Mohapatra, chief executive, SBI Cards, many customers who revolved dues are now converting these into equated monthly instalments.

"The percentage of customers who revolve their dues to total customers is declining. It is good from the issuer's point of view, as risks are reduced," he said.

It is estimated Indian customers who revolve their credit card payments account for 26 per cent of the total customer base. In terms of the amount, credit card dues were estimated at 52 per cent, with the rest being carried forward, said an industry official.

Mohan Jayaraman, managing director, Experian Credit Information Company, said the improvement in customer behaviour had resulted from the fact that now, the sourcing of customers by banks was of a very high quality.

"Banks have become more choosy about issuing credit cards. New customers are low-risk ones who are conservative with their credit and pay on time," he said.

He also cited increased awareness among customers about a good credit record.

While banks see a decline in interest income, owing to the fall in revolving credit, revenues from higher volumes compensate for this. Now, there are very few free credit cards available in the market; most banks charge an annual fee.

Another source of revenue for banks was the commission on spends, Sridharan said.

He added banks were also seeing a rise in spending per card, though the number of cards issued hadn't risen much. While the overall industry recorded a rise was 30 per cent in credit card spends, for Axis Bank, the increase was about 100 per cent.

According to Reserve Bank of India data, in April, though the number of credit cards rose only about one per cent compared to the previous month, the number of transactions increased 12 per cent.

The number of credit cards as of April-end was 19.5 million, almost unchanged compared to March. The transaction amount stood at about Rs 12,400 crore, against Rs 11,100 crore in March.