The credit card issuers in the country are becoming risk-averse day by day. In a recent move, banks have been noticed blocking the credit cards that have not been used for months. This is been practiced to save cost and avoid the potential defaults.

Head of credit card segment in a foreign bank said, "Cards that are not active have a cost attached to them." The cost of generating and posting each credit card statement comes to around Rs 10 which might look negligible but with two million customers, this costs amounts to Rs 2 crore per month and Rs 24 crore annually. In addition, there are card replacement charges that the bank has to bear when the card's validity ends.

Cancellation of inactive cards enables the bank to save its costs connected with communication. "The capacity of the customer service centre depends on the number of cards," said the head of cards with a local bank.

Further the card issuers say that cardholders of inactive cards may be potential defaulters. If the card holders who have not used their card for a year or more suddenly start using it because of the financial troubles faced due to slowdown then there might be risk of default.

As a result of this cancellation, the credit card number in circulation has also gone down to 25.51 million at the end of February 2009. As per the latest RBI data, the number of credit cards has dropped by 1.36 million or 5% between February 2008 and 2009. Further the credit card base also reduced by 359,000 in February 2009.

Meanwhile most of the bankers expected their credit card numbers to decline during the last quarter of 2008-09 due to the pressure to clean up their balance sheets.

General Manager of credit cards and personal loans at Standard Chartered Bank, RL Prasad said, "Banks will focus on reshaping their portfolios and improving profitability, rather than gaining volume."

Where banks are decreasing the number of credit cards under circulation, customers are also reducing their spending through credit cards. The average spending via a credit card has dropped by over 5% to Rs 1,826 in February 2009 from Rs 1,928 in February 2008. Also the average amount spent per credit card transaction has also declined by 8.7% to Rs 2,377 in February 2009 as compared to Rs 2,605 during the same period, a year ago.

Basically the card issuers have become more careful about their clients profile because of the rising non-performing assets (NPAs) to over 20% faced by the credit card segment. Therefore to avoid further delinquencies, banks are blocking the cards of customers who are sensed to be potential defaulters.

Issuers are mainly canceling the card of a customer who has exposure to a high number of cards or has defaulted with another financial institution. Head of a credit card division at a bank said, "Credit card companies have realized that a smaller portfolio with good customers is key to this business."