Credit card business will grow robustly

Marketers and market-makers in the financial services industry have for years salivated at the great Indian opportunity for growing the credit cards market.
And it indeed has been a great opportunity and will continue to be so in the coming years. A growing middle class, rising aspirations and an increased propensity to spend by an inherently young population creates heady mix of untapped market opportunity.
The credit cards industry is today coming out of what have truly been testing times. The financial crisis of 2008-2010 remains fresh in our minds. With the tide seeming to have turned finally and with the indicators across almost all key areas looking positive, if not robust, there is fresh optimism in the industry and an almost unanimous positive view that the industry is today placed well for sustained growth.
Learning from the past
Before we look forward to the future, we have to understand the past. As they say, hindsight is always 20-20. The question remains: what went wrong?
The answer lies not just in one reason but a multitude of factors which both issuers and consumers should introspect upon. Credit is, at the end of the day, a powerful tool and a truly flexible option to meet immediate expenses when cash is not at hand.
The credit card, therefore, adroitly addresses medical emergencies, facilitates holidays and travel, or fulfils the aspiration of purchasing that new television or washing machine, with the knowledge that the payment may be done in parts over a period of time, or when that bonuscheque comes in. What will be key is, how both, consumers and card issuers, will treat this extremely powerful tool?
While the global financial crises is ascribed as one reason for the fallout in unsecured lending in India, the impact was also compoundedby the misplaced market growth ambitions of some credit card issuers who wereimmersed in the mantras of market share and market expansion. With access to easy credit card facilities from over-exuberant and ambitious card issuers, customers somehow seemed to have lost the key message: that credit is an important tool, to be used with responsibility and prudence.
Future bright
The future, however, is bright. Several factors strongly indicate that credit card businesses will grow robustly in the coming years. The first is the emergence of strong credit rating agencies in India. Card issuers now have access to complete information of the applicant prior to issuing a card.
The key will be in seeing how the issuers use this information in taking prudent decisions. All information used in determining the creditworthiness of an applicant ultimately hinges on determining the ability and intention of the applicant to pay back the amount spent or borrowed. The expertise and sophistication of issuers in making such judgments, leveraging bureau data and recalibrating their own policies from time to time, will determine how the industry fares infuture.
Use the powerful tool of credit with wisdom
Customers, too, have now started understanding the importance of using credit wisely. With regulators and banks educating customers about the benefit of a good credit history, it is envisaged that better sense will prevail. Both issuers and customers now have the benefit of hindsight! Taur Mittran Di
Card issuers will have to clearly strategise as to which segments they want to operate in. Most card issuers have moved completely away from the mass market segments as the risk-reward equations have just not borne out.
Their predominant focus has been a move to mass affluent segments and high networth individuals. These segments are traditionally more robust and easier to evaluate. Credit underwriting norms have been tightened across the board. Card issuers also have to become more judicious about growing the market purely for that sake, as inactive cards can savage a portfolio.
It is no wonder that of the 28 million cards which were in the marketplace in 2008, only around 20 million exist today. While there has been a huge de-growth in plastics, there has been no slowing down the overall industry spends which have been growing robustly.
All of which goes to show the wastage by the industry in issuing cards to customers who saw no value in the product. At the end of the day, the consumer is king and will patronise a product or a brand which adds enhanced value to his / her life.Free cards, in many ways, were perceived to be free of value and benefits, and, as a corollary, have been freed of customer patronage!
Customer is king
Card issuers will now have to work extra hard in delivering enhanced value to consumers. Creating and managing sophisticated products, constantly enhancing value and innovating on service delivery, will be key drivers of future growth.
It’s a large market, so exercise care
At this stage, the opportunity looks large with a large untapped market potential. Only about 3% of the total personal consumption expenditure in India is done on plastic cards. With the government keen on moving more payments on to electronic media, the spends on plastic cards will continue to grow significantly.
The sustained growth in organised retail, the booming e- commerce space, the aspirations of one of the youngest populations in the world and the strong, globally savvy emerging middle class… all foretell that it can only be a boom time for the credit cards business in the coming years. The key will be to take measured steps based on prudence and good judgment. Let the good times begin!

SBI Cards to customise offers about spending model

Credit-card issuers are increasingly turning into financial counsellors. Come January quarter, SBI Cards, a standalone credit-card company co-promoted by India's largest state-owned bank, plans to launch ‘customised statements' to help its customers know their spending pattern, say over a year.
Based on the analysed spending pattern, which will be shared in the credit-card statements, SBI Cards will provide ‘offers' that would help its customers save on their spends.
“Our new customised statement will tell you where your Rs 100 is going. X per cent in grocery, Y per cent in jewellery, and so on, We want to help customers know how are they spending… where their money is going …and we have offers which are going to help them make smart savings on their spends,” Mr Sanjeev Jain, Chief Executive Officer, GE Capital Business Processes Management Services (GECBP), said.
GECBP handles the technology and processing needs of SBI Cards. The total number of SBI credit-cards issued and outstanding is about two million. Nearly 60 per cent of SBI Cards' customers are receiving e-statements (in electronic form), Mr Jain said.

Personal touch

Any analysis of spending patterns by SBI Cards may not be an industry first in India, but it does show how credit-card issuers are striving to provide better customer experience.
“We believe that we are in an industry where we should be working like an FMCG company works, and not as a finance company. We believe that our touch-points with customers are going to be extremely personal,” Mr Jain said.
Mr Kadambi Narahari, CEO, SBI Cards, said that the company was very customer-centric and plans to increase its presence in Tier-II and Tier-III cities in the coming months.
The credit-card industry in India is still at a fairly nascent stage. The exuberance seen among credit-card issuers prior to 2007-08 has now changed and customers have also become more financially savvy, Mr Narahari noted.

A period of turmoil

The last five years, since the outbreak of the global financial crisis in 2007-08, has been a period of turmoil for the credit-card industry in India. From a high of 27 million cards in 2007-08, the total number of credit-cards outstanding has now come down to about 18 million as of end October 2011, according to latest RBI data.
But SBI Cards is very bullish about the Indian market given the fact that it is still under-penetrated. “As consumerism grows, and as people become comfortable with plastic, the credit-card market is bound to grow. People are already very comfortable with plastic in terms of debit cards. The usage of credit cards probably would ride, in some sense, on that. Our idea here is to see how we can develop the credit-card market and make sure it grows in a big way,” Mr Narahari said.

Cheaper mortgages offer setting up chance

Although rock-bottom interest rates are playing havoc with investment returns, they offer a retirement-planning opportunity that adviser Marguerita Cheng now uses regularly: mortgage refinancing.
“For our reviews, we ask clients to bring in their mortgage statements and investment statements,” said the Ameriprise Financial Inc. financial adviser. “Since you can't control markets but can control what you save and spend, why not lock in a lower rate today and save more money for the future?”
Just last month, Ms. Cheng met with a 55-year-old client, a federal employee, who wanted to replace her 30-year 5.25% mortgage with a 15-year 3.25% mortgage so that she and her semiretired husband, a professor, could be almost debt-free once they stop working.
The couple owes $116,000 on the remaining 20 years of their mortgage, with a monthly principal and interest payment of $1,365. The refinancing not only would shorten the term of mortgage by five years but reduce monthly payments to $1,268.
“These clients have already been making extra principal payments, so if they continue, they can be fully paid off in 10 years,” Ms. Cheng said.
Given the Federal Reserve's decision last month to keep the federal funds rate in the 0% to 0.25% range at least until the end of 2014, many advisers think that replacing higher-cost debt — principally home mortgages and credit card balances — or paying it down faster, offers a savings opportunity that is more attractive than many investment returns.
In addition, advisers, worried about future inflation, feel that it's wise to lock in today's low rates.
“If you have a fixed-rate mortgage, you're happy if inflation goes up: The size of your debt gets smaller in real dollars,” said Christopher Van Slyke, an adviser with Trovena LLC. “If you have a variable-rate loan or a credit card, you're in big trouble.”

Kotak Mahindra Bank buys Barclays credit card portfolio

Kotak Mahindra Bank has acquired the non-performing portfolio of Barclays Bank’s credit card business in India. The deal, experts said, gives momentum to the sale of stressed loan market in the country which has been having a dry run following stringent regulatory norms introduced in 2007.
Last month, Standard Chartered Bank bought the performing portfolio of Barclays’ credit cards business in India. Barclays has decided to exit retail assets business in India and is also looking for buyers for its Rs 3,000 crore retail loan portfolio.
The portfolio acquired by Kotak Credit Card is estimated to be around Rs 250-300 crore and comprise nearly 200,000 cards. The private sector lender’s in-house asset reconstruction team will be responsible for recovering the dues from these accounts.
While the deal value was not immediately known, banks in India have to follow the Reserve Bank of India’s (RBI) guidelines on valuation of stressed asset sale.
According to RBI guidelines released in October, 2007 banks while selling non-performing assets have to work out the net present value of the estimated cash flow associated with the realisable value of the available securities net of the cost of realisation. The sale price, generally, should not be lower than the net present value.
Banks in India have once again expanding their credit cards businesses aggressively after a gap of nearly three years.
Standard Chartered Bank became the fifth largest credit card issuer in the country after it bought 170,000 credit cards from Barclays. The foreign lender is believed to have acquired this portfolio at a hefty discount to the book value, which was estimated around Rs 180-200 crore.
The transaction was the second buy-out in the credit card space following IndusInd Bank's acquisition of Deutsche Bank's credit cards business earlier in 2011. Yaad Teri Awarapan 2 Mp3 Song
IndusInd Bank bought 200,000 cards portfolio from Deutsche Bank including the foreign lender's operating platform, technology, and staff. The private bank launched 'IndusInd Credit Cards' on June 1, 2011 and aims to grow the portfolio four-fold to Rs 800-900 crore within three years.
"We believe after three to four years of bloodbath and washout, the credit card industry is now ready to take off once again. This is a high-risk, high-reward business, and we think if we manage the risks properly, the rewards will be higher now," Romesh Sobti, managing director and chief executive of IndusInd Bank, told Business Standard in an interview post acquisition of the cards business.
Even the established players have turned aggressive in growing their credit cards operations.
HDFC Bank, the largest issuer of credit cards in India, aims to double its portfolio in the next couple of years. The bank, which has 5.05 million cards, expects its portfolio to touch 10 million in two years, including two million cards exclusively for its women customers.
The bank also launched 'Infinia' cards last year for the uber-rich community, positioning it against the American Express, or Amex cards.
Bankers said that unlike the last time, there will not be significant erosion in the banks' asset quality, since the expansion strategies are backed by rich information on borrowers' credit histories obtained from the credit bureaus.
In September, 2011 the number of outstanding cards in the industry increased for the first time in eight months to 17.6 million. The number of cards has remained around the same level since then.