Size of Credit Card Business in India

The following table shows the picture of the Credit card Business in India.

The above table shows that:

• In the recent years, the amount spent on cards as increased steadily.
• The number of credit cards increased from 2005-06 to 2008-09, but in 2009-10, this number as fell drastically.
• The amount spent on cards has also come down heavily in the last financial year.

This is because of the stringent rules released by RBI to curb the menace of default in the credit cards and banks reorienting their business strategy.

The slide began around 2 years ago. In 2008, the credit card industry touched the peak of 27 million cards, after that industry drastically cut the number of the credit cards. The pace of cutting the cards got fast in March 2010, when in a single month 20 Lakh cards went out of use.

The culprit is raising defaults in the industry and an unsecured loan portfolio of the customers, which led the banks to rethink about their growth strategy. This was in synergy with several regulatory warnings and court strictures about aggressive recovery practices of many banks that actually forced them to go slow in this business.

The reasons can be pointed out as follows:

1. Nonperforming assets (NPA) in India’s credit card business have mounted up to four times.
2. In India, the cost of attaining new credit card holders is low, but credit loss is very high as compared to the international standards. This is evident from the fact that annual credit losses in India on per active card were about Rs 3,420 against Rs 3,070 in the US and Rs 1,220 in Australia.
3. There are a high number of inactive cards among the Indian issuers.

The Reserve Bank of India had issued its first guidelines in 2005 regarding the Credit card Business. This was basically a response to the aggressive marketing policy of the credit card issuers. A summary of these guidelines is as follows:

1. The banks should assess the credit limit for a customer on the basis of information provided by the customer (self declaration) or credit information.
2. The banks would be solely responsible for the KYC (Know Your Customer) requirements.
3. The card issuers should indicate the annual percentage rates (called APR) on card products and also indicate clearly the late payment charges and number of days.
4. Bank will not levy any charge that was NOT mentioned / indicated at the time of issue of the card.
5. If there is any change in the charges, the Issuer will give a proper notice 1 month prior to change.
6. The issuer will not make wrongful bills, if by mistake they do it, the customer protest would be addressed within 60 days with relevant documents.
7. If unsolicited card is issued and activated by the bank / issuer and the customer is billed for the same, the issuer would have to reverse the billed charges and pay penalty, which is twice to amount they charged.
8. The time limit is 60 days for the customer to make / register complaints.
9. The grievance has to be addressed in 30 days and after that the customer will be free to approach banking Ombudsmen.

The result of these tighter norms was that now the banks issue the cards very selectively and only to those customers with whom they have long lasting relationships. The days of unsolicited cards now over and now actually it is bit difficult to get a credit card.

IVR Route for Credit Cards:

• In May 2010, the RBI made it mandatory for banks and credit card companies to put in place an additional security measure for credit card transactions through the interactive voice response (IVR) route from January 1, 2011.This was a sequel to the August 2009 directive of the Reserve Bank of India, in which it had asked banks to introduce an additional security feature for online credit card transactions but had excluded interactive voice response transactions then.

National Payments Corporation of India’s (NPCI)

National Payments Corporation of India’s (NPCI) was established in 2008 and is being promoted by State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC. NPCI is an umbrella organization for all retail payment systems in the country owned and operated by banks. Its National Financial Switch (NFS) is linked to 61702 ATMs (September 2010). The relevant data is released by NPCI.

• Cumulative monthly transaction volumes recorded by the National Payments Corporation of India’s (NPCI) crossed the 10-crore mark for the first time in August 2010. The Switch recorded 7.32 crore ATM transactions in July 2010.

Some Typical Words:

• Floor Limit v/s Card Limit: Please note that floor limit is the discretion to the merchant establishment up to which it can accept the card for payment. The Card limit is the limit up to which a holder can use the card. This is restored on making the previous payments.
• Hot Card v/s Hot List: A hot card is a lost or stolen card. A hot list is the list of caution against the use of a credit card by a defaulter holder.