The credit cards segment of India has taken a hit by the ongoing global crisis and two-digit inflation. With the delinquency rate going high in the country, banks and card issuers have been hesitant on issuing credit cards. The annual growth rate of the industry is also expected to come down to 20-25% by the end of the current fiscal. Over the last few years this growth has been noted at 30-35%.
In order to escape the recent crisis banks have been cautious in their lending and are targeting to capture only the mid and high income group to ensure repayment.
Standard Chartered General Manager, Head Cards & Personal loans, RL Prasad said, "Banks are becoming careful about unsecured lending at this critical juncture when the economy is slowing down and prices are moving northwards."
He further confirmed that credit card section of StanChart will not be affected by the situation as it already caters to the high and premium income group.
American Express has also been following the same principal and therefore expects to avoid crisis. Amit Dutta, American Express Vice-President (marketing) said: "We cater to the affluent segment whose annual income is above Rs 8 lakh per annum. Repayment is generally a problem with those in the lower-income group."
India's card usage has gone up by as much as 15% over the last few months due to the higher interest rates charged for home loans and personal loans. Also inflation has reduced a person's disposable income that has forced him to use his credit card more frequently. Consumers have been shifting their cash purchases to credit cards to suspend payments.
So as the use of plastic money is on a rise, the default rate chances are also increasing alongside. Presently the default rate for payment is around 7.5-9% which is likely to rise in the coming times. Rupeetimes.com reacently wrote about a possible debt trap.
Credit Card Management Consultancy (CCMC) director Vijay Mehta said, "The number of customers defaulting on credit card payments is likely to increase by the end of this financial year and the industry may witness some strain on repayment in certain categories in the months to come."
Indian consumers spend an average of Rs 4,000 a month on their credit cards. It is only1% of their total purchases. Although this figure quite below the world average of 9% yet banks and credit cards issuers fear high default rate in near future because of the global slowdown and high inflation in the country.
There are currently 25 million credit cards in the country of which only 40% are active. Even though the credit card usage in the country is rising, it is far below the other Asian nations such as China, Japan, Korea and Thailand.