Credit card industry breathes easy

Tighter norms, better economy reduce credit card non-performing assets.
SBI Cards, one of the four largest credit card issuers in the country, saw its non-performing assets (NPAs) fall to 9.77 per cent of total assets as on September 30, against 10.5 per cent at the same time last year. At the peak of the downturn, its NPAs were as high as 16.28 per cent.
The lender has also managed to put a lid on losses, which fell to Rs 91 crore at the end of the September quarter, from Rs 96 crore in the first half of 2008-09, according to a release by Crisil.
“We are definitely in a much healthier shape now and our delinquencies are lower than the industry average. More important, our default rates on new cards are very low,” said a senior executive of SBI Cards. “We only have to ramp up our card base. Already, we are issuing 50 per cent more cards per month now than we were in April.”
SBI Cards is among the many issuers reaping the benefits of tightening credit norms and an improving economic environment. This sets the stage for a revival of the industry and a pick-up in card issuances in coming months, observers say.
Others are also upbeat. “There are signs the market may improve in the coming few quarters. Our NPAs have been well under control and we see the trend continuing,” said RL Prasad, head of credit cards at Standard Chartered Bank.
“For the industry, issuances are likely to pick up six to nine months from now once we see sustainable improvement,” he added. StanChart has 1.3 million credit cards in circulation at the moment.
A spokesperson for ICICI Bank, which has the largest credit card base in the country, said, “We are witnessing encouraging results in our credit card portfolio performance,” but declined to share specific numbers. At its peak, it had more than nine million cards in circulation; it currently has a base of 5.2 million.
Questionnaires sent to HSBC and Citibank, among the top five players in the market, weren’t answered.
One of the lessons banks have learnt from the downturn is that existing savings account customers are a much safer customer class.
HDFC Bank, the largest issuer of new cards in the country, has made it a policy to issue 85 per cent new cards to its existing customers. This allowed it to keep up new issuances when other players were whittling their credit card base.
According to sources, HDFC Bank is issuing 70,000-80,000 new credit cards per month and has recently tightened credit norms. It has about 4.7 million credit cards in circulation.
Bankers say the market has also shifted towards the high-end, which is less susceptible to delinquencies. “Our focus for the last three years has been the premium segment and losses from this segment are significantly less than from other segments,” said StanChart’s Prasad.
While the pool of premium customers is much smaller than the mass segment, high-end customers make up by spending more. “I would prefer to have 5,000 high-end customers rather than 20,000 premium segment customers,” said the credit cards head of a large foreign bank.
Apart from being a more secure credit category, high-end categories such as Platinum cards also earn banks a higher interchange fee from merchants every time a customer swipes his or her card at a terminal.
With Platinum cards, issuers earn a 1.75 per cent interchange on the transaction amount, whereas with Gold cards, the interchange is just 1.25 per cent.
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Credit card debt, terms limit holiday spending

The holiday season has always been a time to lavish her family with gifts — regardless of whether there was money to pay for it.

“If there was no money the card came out,” “Anything that was on the list, so to speak, would be purchased, whether or not we could afford it. We always had plastic.”

This year, things are different: Fed up with rising fees and determined to pay off her debt from years past, Getz has cut up her credit cards. That means she’ll be spending less on Christmas presents for her kids and grandkids this year and thinking more about the spiritual side of the holiday season. “It’s still going to be Christmas, but we’re not going to be overburdened with credit card debt or any other type of debt,"

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As holiday season shoppers struggle with a difficult economy, one of the big issues many face is onerous credit card bills left over from years past, when credit was generally easier to come by and cheaper to maintain.

In response, consumers are cutting back on spending and paying with cash instead of credit. Many say they are frustrated by changes in credit card fees, limits and interest rates stemming from the financial crisis that have made it more expensive to finance the holidays with plastic.

The reduction in debt is probably an outgrowth of rising unemployment, which limits spending, and a reduced availabilty of credit.

Many consumers also are working hard to get their balance sheets in order, following years in which debt for some spiraled out of control.

Some 6 percent of consumers, or 13.5 million people, are still carrying debt from last year’s holiday season, according to Consumer Reports.

A potential reduced reliance on credit cards would add another headwind for retailers, who depend on the holiday season for a large chunk of profits but are facing another year of potentially sluggish sales.

‘It has affected my Christmas spending’
Over the past year Leo Corona has seen the interest rate on both his credit cards raised, and one card company has lowered his credit limit.

“It has affected my Christmas spending because if I wanted to use the option of (credit cards) I know I’m going to be bogged down with a higher payment and a higher interest rate,” Corona said. “So naturally, I’m going to spend less.”