Credit card issuances up as economy revives

Debashish Tripathy, a software engineer with Infosys, is now more confident of using his credit card, thanks to stability in his job and the economy in general. In the early months of this year, he had shifted to using the debit card for all his purchases.

“I was using my debit card for all my purchases earlier. I was very conservative in using my credit card,” he said. As signs of economic revival become more apparent, banks are expected to expand their credit card portfolios. Dinesh Amrute, banking analyst at broking house Motilal Oswal, said, “Overall, the credit card market is expected to see a 20% growth during this fiscal.”

“State Bank of India, Citibank, Standard Chartered Bank and ICICI Bank are expected to benefit most from this revival,” he said. However, banks have become more stringent in their inspection of the card holder’s financial profile and business. The latest Reserve Bank of India (RBI) data shows that credit card outstandings grew just 1.4% as on May 22, 2009, in comparison to 36.5% during the same period last year.

On a financial year basis, as of October 9, 2009, commercial banks’ non-food credit went up 4.3% against 10.5% in the corresponding period last year. However, bankers feel that improvements in overall credit offtake will certainly see growth in credit card market.

“Cutting across banks, there is a fall in the credit card issuance to new customers. However, things are set to improve with revival of economy,” a top executive of Barclays Card said, on condition of anonymity.

This could have been more on account of overcautious bankers, as customers were willing to take credit cards even during the recession, if they were provided with a value-added product.

During a slump, bankers notice that the defaults on credit cards are higher than usual.
Kamlesh Rao, executive VP, personal finance and mortgages at Kotak Mahindra Bank said, “As defaults in the credit cards are witnessing a significant reduction in last three months, we expect a better trend in card market in future.”

Banks such as Kotak Mahindra, with a credit card customer base of around 1 lakh, plan to pay more attention to existing customers, while issuing new credit cards, rather than focusing on the open market. SBI Card, which has a customer base of around 30 lakh, is also upbeat on adding new customers to its card portfolio.

“We are aggressively adding customers and new products to our existing portfolio and have introduced a new rewards programme to make our product more attractive,” an SBI spokesperson said. He, however, declined to give any growth projections for this fiscal.