Credit card default continue to rise
By Ankit Sharma
Mar 3, 2009
Print    Email    RSS   

The rising interest rates on credit cards and the prevailing economic slowdown has worsened the state of the credit card defaults in the country. The delinquencies that had already hit the segment has been on a continuous rise from the last year and now they have reached a level of 50% to 70%.

The main reason behind the increasing default rate has been the rise in interest rates to as high as 3.4% per month against 2.7%, six months ago. The credit card issuers have been charging increased interest rate when RBI raised bank rates to 13-year high levels. However these issuers have not declined the interest rate when RBI eased the key policy rates.

Meanwhile the credit card issuers do not even seem to slash the interest rates. An official with a leading private sector bank said, "We have competitive rates when seen in light with the industry. Higher-end customers know how to use credit cards. But if you talk about lowering interest rates, it has never happened in the entire history of credit cards."

The issuers said that the interest rate on credit card debt is high because it is not backed by any collateral or security. With RBI relaxing norms and interest rates, cost of funds have declined by almost 200 basis points in the recent past. The customers therefore believe that banks should reduce the interest rates that have been slashed across the board.

Besides, there have been an entry of more players like Axis Bank, Deutsche Bank and Barclays Bank into the segment that have made the credit card rates more competitive. "More competition may not always translate to lower prices for consumers. More entrants have come but credit card as a business has to be profitable. Default rates have risen and the macroeconomic environment is a major contributor in determining interest rates across credit products, including cards," said a senior executive with a card company.

The card issuers say that the risk associated with the credit card business has also gone up. Sandeep Bhalla, business manager, cards, Citibank India, said: "At Citibank, we have already implemented the concept of risk-based pricing and loyal customers who have been on our books for a longer period of time and displayed good usage and repayment history enjoy interest rates as low as half the prevalent base rate. We believe that the market is moving more and more towards customized pricing based on segmentation and risk modelling."

The average spending by an Indian on credit card has been increased to Rs 2,400 per month from Rs 1,800 per month in the last two years.


(Comments Posted : 0) Post Your Comments
Show All Comments
 Select a product:

 Select a product:

12 point conduct checklist for bank and...
Must have add-ons for luxury car insurance
How to select a co-branded credit card?
Kinds of auto insurance coverage
All about Vintage/Classic car insurance in...

Daawat*Call giℛℒ escort In ZiRaKpUr OOOOOOOOOO...
Good Morning, i forgot my FCMB Account Number and...
Radhey@09646870399 @Escoℛts In#Chandigarh...

91st Founders day of the Karnataka Bank Feb 18, 2015
Banks on strike from 25th February Feb 16, 2015
SBT bank postponed the Open House meet Feb 13, 2015
Yes bank planning to line up for credit card portfolio Feb 12, 2015
Pocket banking – new app by ICICI bank Feb 11, 2015
News Archive