ICICI Bank raises credit card rates

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NPAs high

Recently, State Bank of India admitted that its losses on the credit card business were of the order of Rs 150 crore and non performing assets (NPAs) on this portfolio had touched a whopping 16.5 per cent. The problems had become severe enough for SBI to insist on having the head of the card company replaced (a GE money appointee) with one of its own officers.

It is difficult to understand why the credit card industry should be in this soup, when the economy has been growing at 9 per cent and there has been a 15 per cent growth in wages and salaries for the last three years at least - not to mention the considerable amount of spending on consumer goods, entertainment, groceries and travel.

Overleveraged customers

Mr Bhargava thinks that it boils down to a number of highly over-leveraged customers using multiple cards and creating havoc all around. His solution to tackle the problem: use more of own sales agents rather than outsource the marketing function to other agencies.

The possibility of borrowers ripping off the system through multiple banks, accounts and cards was precisely why the Credit Information Bureau of India (CIBIL), an agency meant for sharing borrower information among lenders, was started a couple of years ago. But if one goes by these numbers, it would seem that lenders have not made the best use of resources available.

CIBIL option

A credit card official who did not want to be named said, "About 80 per cent of due diligence is being done on their own by all major banks. A verification of data from CIBIL is being taken up on an optional basis. CIBIL may become popular only three to five years from now going by the present use."

Meanwhile, there is little hope of any immediate improvement. Credit Rating agency Crisil had forecast earlier this year that the NPA situation in personal loans would worsen this fiscal. Credit card holders, brace up.

Taken from Business Line

thehindubusinessline.in