Credit card industry breathes easy

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 (Rs 910 million) at the end of the September quarter, from Rs 96 crore (Rs 960 million) 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.