The increased number of credit card defaults has forced the banks to rethink their credit card business strategies.

According to the data released by the central bank, RBI, there were about 24.69 million credit cards in circulation as on March 31, 2009. Top players, such as HDFC and ICICI Bank have nearly 5-7 million of credit cards in circulation. Since September 2008, the number of credit card losses has increased considerably due to the economic slowdown. In a study conducted by Indian Cards Council (ICC), it was found, the non-performing assets in India's credit card business have increased by about four times.

A top official at Citibank said, "The credit card industry has acted irresponsibly by issuing free life cards to all and sundry without evaluating the creditworthiness of the customer and hence the entire value of the credit card has been destroyed." The official confirmed though the bank has been evaluating the option of reintroduction of annual fees, the actual decision is yet to be taken.

Banks have been taking multiple steps to reduce the credit exposure. Many banks have shifted their focus from mass market to the premium segment where AMC exceeds Rs.25, 000. Additionally, banks have been working to reintroduce the annual maintenance fees for the mass-market cardholders. Not only will this step enable the banks to generate additional income, it would also help them to reduce the costs related to communication and billing for the dormant cards.

R L Prasad, head cards, Standard Chartered Bank, reckoned, "when a customer is paying a fee for the card, the customer will appreciate the value of the product and would be better engaged with the product (use it more frequently) and be responsible in spending."

Commenting on the matter, an ICICI Bank spokesperson, said, "For over two years, we have been offering a mix of both fee and free credit cards and will continue to charge fees for specific products."

In a recent report released by CARE Ratings, it has been predicted that NPAs of the Indian banks are likely to treble by 2011 from the current one per cent, most of which would be the bad credits on personal loans and credit cards.

Banks have been also been working to minimise the credit risks by taking several other steps like reduction of the credit limits and cash limits on the cards, contraction of repayment cycles with limited or no cash withdrawal facility.