Credit Card Industry in India

The credit card industry in India has registered an encouraging growth in recent times, but the usage pattern of credit cards remains a point of concern, those in the industry say. Seven years back, India had a base of around five lakh credit cards. There has been a seven-fold increase, with the number of cardholders touching over 38 lakh. These figures point towards the fact that the credit card industry in India is growing at a brisk annual rate of 30 per cent and is expected to grow at a similar rate in the coming years. This fortifies the view that conservative purchasing ideas are giving way to the big in-thing. But it is the usability that raises doubts.

According to a survey by the Credit Card & Management Consultancy (CCMC), 71 per cent of first time credit card applicants in the country have expressed the need for advice on appropriate card selection despite the plethora of cards available in the market. Through this survey it has come to realize a long felt need of potential and existing cardholders for advice on suitable selection of a credit cards. The whole idea behind the introduction of the credit cards was to increase the purchasing capacity of the cardholder. With this in mind, the foreign banks launched a credit card blitzkrieg on the Indian customer.

The innovations have already begun to show their effect. The Standard Chartered Bank has seen its credit card base shoot up after the launch of its Global Rupee Card in March last year.

It has seen the fresh issuance of global card increase by more than one lakh, and the bank now has a base of more than half a billion. But the real challenge for the banks is to make the holder spend more on the card. Going by estimates, India has a long way to be anywhere near the matured markets. The markets like the United States and England have an average annual card spend of 1,300 and 3,600 dollars respectively.

The credit card players will have to think about simplifying the foreign exchange transactions. When one uses the card, it is entirely his responsibility to make sure that exchange controls have been complied with. The banks that issue the cards have made it abundantly clear that one has to look out for him. It is upon him to find out the facts of regulatory life. The real point of worry is the spending on the credit cards. According to estimates, the average card spending in India is even less than that in Indonesia. Those in the credit card business say that per capita credit card spending in India is about 500 dollars , whereas in Indonesia, it is about 678 dollars. At present there are over a dozen players in the credit card market in India, and the fact is the foreign banks are clearly the leaders. The leaders will surely be identified by the innovations for the card users.

But the alarm has been raised for the banks by the figures that show that while the average usage in Malaysia is 27 times annually, in India it is only 11 times. Some of the key factors impacting the cards business in India are limited credit, wide geographical spread, limited telecommunication infrastructure and emerging regulatory controls. The other players feel that the card acceptance base in India has to be widened. Suggestions include credit card usage at petrol pumps and railway bookings.

They also point out that though the cards business has been in the country for long, but even today the insurance premium cannot be paid by card. Though LIC is talking about the introduction of this facility to customers, but its turning into reality may take time. There is talk of widening the card business with new features, but the present scenario does not paint a positive picture, with many loopholes remaining to be plugged.

Of the twenty million taxpayers in India, more than ten per cent of them are cardholders. Those in the industry point out that this figure is not bad, considering the fact that; the cards business is still in its initial stages. However, the players feel that the business has not reached an optimum level to say that they are making money. Even the largest player in the Indian market does not still have the economies to make the card business really profitable in India, despite the fact that it has more than one million credit card holders. Less than two per cent of private consumption spending in India is done on cards.

While issuing the cards may seem to be easy, the challenge for the banks lies in being able to manage their portfolios by keeping the delinquency levels at the lowest. Huge investments in systems and infrastructure are, therefore, a necessity. The increase is being attributed to new ideas such as round-the-clock functioning of card issuing banks and pulling out all stops even at a loss, to grab a sizeable share of the expanding pie. Not to be left behind in this race, even the big brother, the State Bank of India in association with GE Capital entered the card business.

The spurt in the card business has gathered momentum during the past couple of years. For instance, the Hong Kong & Shanghai Banking Corporation (HSBC), was in the credit cards business since seven years, but from 50,000 card holders in 1997, it has about three lakh card holders now.


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