MUMBAI: Banks saddled with lakhs of crores of bad loans, mainly from corporates, are staring at a new problem on the retail front — rising credit card outstandings.
Significantly, credit card outstandings between December 2012 and February have risen by Rs 700 crore — from Rs 24,800 crore to Rs 25,500 crore. In August 2008, one of the worst years for the credit card industry, the outstandings stood at Rs 29,056 crore.
"I do not see the default rate going up because even if GDP grows by 5%, we do not expect unemployment levels to rise alarmingly," said Muge Yuzuak, country head - cards and personal loans, Citibank India.
"Growth in employment may not be as high as we would like it to be, but the default rate is not expected to be impacted until unemployment becomes an issue. Further, we expect the industry to behave maturely and grow its books responsibly," she said.
Credit card spends have also slowed down amid rising outstandings with banks, reminding one of 2007-08, when credit card delinquencies were at their peak.
Spends have actually dipped from Rs 11,256 crore in December 2012 to Rs 10,222 crore in February, but the industry attributed this to the seasonality in business, when spends tend to peak during December because of the festival demand and discounts at several merchant outlets. Though, spends on an annual basis rose 25% in February, it is still lower than the 32% in the same month a year ago.
Card issuers aren't reading too much into it and are not treating this as a repeat of 2008. Large card issuers, including HDFC Bank, Citi, ICICI Bank, SBI and Axis Bankhave actually expanded their card base over the past two years, though with caution.
Outstanding credit cards in the system have been rising steadily too. In FY13, between April and February, outstanding cards rose by 1.56 million. After having learnt their lessons, issuers say they are much better equipped to manage the quality of their portfolios. The country average in default of cards is approximately 4.3%, according to industry estimates.
"The reason why this market went through stress in 2008 was not just because consumers did not use credit responsibly, but also because the overall credit at the industry level was not robust. This resulted in loans way above the customers' ability to repay. The framework has been strengthened since then," said Yuzuak.
Besides, these days, there's a larger awareness of the credit bureau and the ability to use all the information about the customers' books. "We are focused on our defined customer segments across the wealth spectrum," she said.
"Higher outstanding could be a mix of credit card spends and issuances going up," said KVS Manian, group head— consumer banking, Kotak Mahindra Bank. "Banks build in 4-5% losses in their economics, but losses have been lesser than this in the past two years."
Significantly, credit card outstandings between December 2012 and February have risen by Rs 700 crore — from Rs 24,800 crore to Rs 25,500 crore. In August 2008, one of the worst years for the credit card industry, the outstandings stood at Rs 29,056 crore.
"I do not see the default rate going up because even if GDP grows by 5%, we do not expect unemployment levels to rise alarmingly," said Muge Yuzuak, country head - cards and personal loans, Citibank India.
"Growth in employment may not be as high as we would like it to be, but the default rate is not expected to be impacted until unemployment becomes an issue. Further, we expect the industry to behave maturely and grow its books responsibly," she said.
Credit card spends have also slowed down amid rising outstandings with banks, reminding one of 2007-08, when credit card delinquencies were at their peak.
Spends have actually dipped from Rs 11,256 crore in December 2012 to Rs 10,222 crore in February, but the industry attributed this to the seasonality in business, when spends tend to peak during December because of the festival demand and discounts at several merchant outlets. Though, spends on an annual basis rose 25% in February, it is still lower than the 32% in the same month a year ago.
Card issuers aren't reading too much into it and are not treating this as a repeat of 2008. Large card issuers, including HDFC Bank, Citi, ICICI Bank, SBI and Axis Bankhave actually expanded their card base over the past two years, though with caution.
Outstanding credit cards in the system have been rising steadily too. In FY13, between April and February, outstanding cards rose by 1.56 million. After having learnt their lessons, issuers say they are much better equipped to manage the quality of their portfolios. The country average in default of cards is approximately 4.3%, according to industry estimates.
"The reason why this market went through stress in 2008 was not just because consumers did not use credit responsibly, but also because the overall credit at the industry level was not robust. This resulted in loans way above the customers' ability to repay. The framework has been strengthened since then," said Yuzuak.
Besides, these days, there's a larger awareness of the credit bureau and the ability to use all the information about the customers' books. "We are focused on our defined customer segments across the wealth spectrum," she said.
"Higher outstanding could be a mix of credit card spends and issuances going up," said KVS Manian, group head— consumer banking, Kotak Mahindra Bank. "Banks build in 4-5% losses in their economics, but losses have been lesser than this in the past two years."
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