indian+credit+card+industry

8/9/2019 Indian+Credit+Card+Industry

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Prepared by: Avinash Maurya (Sr. No 11)


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A credit bureau is a repository of credit information of all customersof its members, which comprises banks and financial institutions.CIBIL (Credit Information Bureau of India Limited) is one such

organization that collates credit information contributed by itsmembers and disseminates it to lenders, helping them in their credit-decision-making and lending process. CIBIL houses only creditinformation i.e. information on loans and credit cards. It does not

accounts. Members share this credit information of their customerswith CIBIL month on month so that CIBILs database is updated. Thisinformation is then used by credit underwriters to make effectivecredit decisions.

Therefore, with proper financial planning and by maintaining a goodtrack record of repayment of dues for loans / credit cards, you will beable to build a good credit history for yourself. This, in turn, may helpyou in getting future loans / credit cards easily or on better terms.


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Penetration

22.622.622.622.6

24.3824.3824.3824.3825

30Credit card in circulation (in millions)Credit card in circulation (in millions)Credit card in circulation (in millions)Credit card in circulation (in millions)

7.17.17.17.1

10101010

13.113.113.113.1

17.517.517.517.5

0

5

10

15

20

2003 2004 2005 2006 2007 2008-Apl,09

Credit card in circulation (in millions)

Source: Link


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Around 27 Million consumers spent Rs. 580 Billion through

credit cards in FY 2008.

Data released by the Reserve Bank of India (RBI) showed thenumber of cards fell by 332,000 in April,2009 to 24.38 million.

On a year-on-year basis, the card population fell by 5% or 1.36

million between February 2008 and 2009. Meanwhile thecredit card base also shrank by 359,000 in February,2009.

Interestingly, even among the rich, credit card ownership in

India is the lowest in the world. While 90% of the affluent in

Hong Kong have credit cards and the corresponding figure forSydney stands at 87%, in India, only 28% of the affluent have

credit card.

Source: Link


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A study stated that there are a high number of inactivecards among the Indian issuers. There were only 56%

active cards in India as compared to 80% and 75% in

CaveatsCaveatsCaveatsCaveats

In many cases, people holds more than 1 credit card at

a time.

No bank openly talks about its credit card numbers and

figures of non-performing assets, or NPAs, but analystspeg the NPA average in the credit card business at

around 10%.


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Personal consumption through credit cards in India is one of

the worlds lowest, at about 1% of total spending, against

global average of 8.6%, Asia Pacifics 6% and Chinas 3%.Which means that out of every Rs.100 spend only Re.1 is via

credit card.

Banks issued credit cards ree o joining ee and annual eewithout looking into customers credit history.

Multiple cards lead to some problems for customers like

losing track of the different bills each month and hence

falling behind on payments; sometimes the temptation ofhigh credit limits entice customers to overspend. Which may

lead to defaulting in payments and ultimately bad debts.


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Since about 60% of Indian credit card customers do not

roll over their credit. This means that even if all

customers pay interest rate per month, a banks

earnin s are much less because onl 40 out of ever

Banks cannot make money on their credit card business, why?

100 customers are rolling over their credit. This is onereason why banks cannot make money on their credit

card business.


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The other deterrent is the small size of credit card transactions.The average transaction size is Rs 1,200. Typically, for every

transaction, banks earn 1.1% from the merchantsfrom whoma credit card user buys goods. But the actual earnings for abank, on every transaction, is much lower, about half apercent, as the customers get free credit for between, say, 20

days and 45 days. Banks have a cost of money, which could beabout 60 basis points for a month, if its average cost of depositsis 7% or so. One basis point is one-hundredth of a percentagepoint. There are other expenses too for running a callcentre, sending monthly credit card bills and the cost of thepiece of plastic. After taking care of all costs, banks cannot makemuch money as only 40% of their customers pay interest onrolled-over credit.

Source: Link

Learn how financial

charges are levied oncredit card: Link


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Many issuers have started blocking inactive and

dormant cards, which carry a cost for the bank in theform of billing and postage charges. In addition, there

is a risk that such cards will be used as a last resort

.

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.


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ICICI Bank Ltd, the countrys largest private sector

lender, has closed about 1.5 million accounts of creditcard customers and brought down the total number to

around seven million.

.

few banks are revisiting the business model and plan

to start charging annual fees, while all are raising the

income threshold limit for new customers.

They are also cutting down the credit limit for theexisting customers.


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One way of increasing the credit card use could be by making all

utility payments through cards. One can use credit cards for

paying petrol bills, mobile phone bills, insurancepremiums, airline and railway tickets, besides other consumer

goods. But there are many other payments that cannot be made

through credit cards even now. For instance, school tuition

fees, water tax and other municipal taxes, electricity bills andfees for doctors and clinics, although some hospitals have now

started accepting cards.

Steps taken to make all utility payments through cards,

e-seva in Andhra Pradesh, that ensures all utility bill payments at one pointthrough cards. [Link]

Kerala has launched a project called "Friends" that works on the same

model. [Link]


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Increase in the distribution of Electronic Data Capture

(EDC) terminals. These terminals, which process creditand debit card payments, are put up by the card-

issuing banks.

credit cards. Currently, only 3.5% service tax is imposed

on credit card transactions.

Source: Link


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The number of debit cards issued by banksgrew at a CAGR of more than 43% from FY2006 to FY 2008.

There were over 102 Million consumers with.

spending during FY 2008.


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Your inputs on this topic will be appreciated.

indian+credit+card+industry

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