Short on cash,consumers delay credit card payments

The economic meltdown has now started showing in the repayment pattern of credit card bills.

The economic meltdown has now started showing in the repayment pattern of credit card bills. The Indian consumer class,which has been thriving on credit for the last four years,is delaying payment and banks have started to feel the pinch.

Most banks are anticipating higher loss ratios and are building it into their accounts. Loss ratio indicates the portion of credit card loans not being paid by subscribers.

ICICI Bank,the countrys largest private bank and second only to the government-owned State Bank of India,in fact,has been less aggressive in increasing its credit card book. This shrunk from Rs 8,100 crore in the first nine months of 2007-08 to Rs 7,800 crore during April-December 2008. ICICI Bank,with about 7.5 million subscribers,has a 30 per cent market share in the credit card business in the country. The business had been growing at a phenomenol 30 per cent on an average during the last three years.

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ICICI Banks strategy to check delinquency by slowing down on the credit card business itself bears from a conscious decision it took in the beginning of the year,says Chanda Kochar. In her first detailed interview after being named the Chief Executive Officer and Managing Director-designate of the bank,she told The Indian Express that the loss ratio on its credit card business has touched double digits this year.

The increase in loss rates is here to stay, Kochar said. Individuals prioritise their repayment commitment during an economic downturn and paying credit card bill is last in the priority, she noted,adding banks would have to build this into their calculations.

The total credit card outstanding for the industry as a whole jumped 69.3 per cent to Rs 29,359 crore in the 12 months ending December 19,2008.

Kochar said the home loan business of her bank was also up only marginally in the first nine months. The lending rates for all loans including home loans have to be corrected by at least 2 percentage points to revive interest. The correction in interest rates has not happened, she said. ICICI Bank is expected to review its own mortgage rates in two months.

P Vaidyanathan Iyer

P. Vaidyanathan Iyer is The Indian Express’s Managing Editor, and leads the newspaper’s reporting across the country. He writes on India’s political economy, and works closely with reporters exploring investigation in subjects where business and politics intersect. He was earlier the Resident Editor in Mumbai driving Maharashtra’s political and government coverage. He joined the newspaper in April 2008 as its National Business Editor in Delhi, reporting and leading the economy and policy coverage. He has won several accolades including the Ramnath Goenka Excellence in Journalism Award twice, the KC Kulish Award of Merit, and the Prem Bhatia Award for Political Reporting and Analysis. A member of the Pulitzer-winning International Consortium of Investigative Journalists (ICIJ), Vaidyanathan worked on several projects investigating offshore tax havens. He co-authored Panama Papers: The Untold India Story of the Trailblazing Offshore Investigation, published by Penguin. ... Read More

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