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Prepared by: Avinash Maurya (Sr.

No 11)
 A credit bureau is a repository of credit information of all customers
of its members, which comprises banks and financial institutions.
CIBIL (Credit Information Bureau of India Limited) is one such
organization that collates credit information contributed by its
members and disseminates it to lenders, helping them in their credit-
decision-making and lending process. CIBIL houses only credit
information i.e. information on loans and credit cards. It does not
have any details of customers’ savings accounts or fixed deposit
accounts. Members share this credit information of their customers
with CIBIL month on month so that CIBIL’s database is updated. This
information is then used by credit underwriters to make effective
credit decisions.
 Therefore, with proper financial planning and by maintaining a good
track record of repayment of dues for loans / credit cards, you will be
able to build a good credit history for yourself. This, in turn, may help
you in getting future loans / credit cards easily or on better terms.
Penetration
Credit card in circulation (in millions)
30

25
24.38
22.6

20

17.5

15
Credit card in circulation (in millions)
13.1

10 10

7.1
5

2003 2004 2005 2006 2007 2008-Apl,09

Source: Link
 Around 27 Million consumers spent Rs. 580 Billion through
credit cards in FY 2008.
 Data released by the Reserve Bank of India (RBI) showed the
number of cards fell by 332,000 in April,2009 to 24.38 million.
 On a year-on-year basis, the card population fell by 5% or 1.36
million between February 2008 and 2009. Meanwhile the
credit card base also shrank by 359,000 in February,2009.
 Interestingly, even among the rich, credit card ownership in
India is the lowest in the world. While 90% of the affluent in
Hong Kong have credit cards and the corresponding figure for
Sydney stands at 87%, in India, only 28% of the affluent have
credit card.

Source: Link
Caveats
 A study stated that there are a high number of inactive
cards among the Indian issuers. There were only 56%
active cards in India as compared to 80% and 75% in
Australia and Singapore respectively.
 In many cases, people holds more than 1 credit card at
a time.
 No bank openly talks about its credit card numbers and
figures of non-performing assets, or NPAs, but analysts
peg the NPA average in the credit card business at
around 10%.
 Personal consumption through credit cards in India is one of
the world’s lowest, at about 1% of total spending, against
global average of 8.6%, Asia Pacific’s 6% and China’s 3%.
Which means that out of every Rs.100 spend only Re.1 is via
credit card.
 Banks issued credit cards free of joining fee and annual fee
without looking into customers credit history.
 Multiple cards lead to some problems for customers like
losing track of the different bills each month and hence
falling behind on payments; sometimes the temptation of
high credit limits entice customers to overspend. Which may
lead to defaulting in payments and ultimately bad debts.
Banks cannot make money on their credit card business, why?

 Since about 60% of Indian credit card customers do not


roll over their credit. This means that even if all
customers pay interest rate per month, a bank’s
earnings are much less because only 40 out of every
100 customers are rolling over their credit. This is one
reason why banks cannot make money on their credit
card business.
 The other deterrent is the small size of credit card transactions.
The average transaction size is Rs 1,200. Typically, for every
transaction, banks earn 1.1% from the merchants—from whom
a credit card user buys goods. But the actual earnings for a
bank, on every transaction, is much lower, about half a
percent, as the customers get free credit for between, say, 20
days and 45 days. Banks have a cost of money, which could be
about 60 basis points for a month, if its average cost of deposits
is 7% or so. One basis point is one-hundredth of a percentage
point. There are other expenses too for running a call
centre, sending monthly credit card bills and the cost of the
piece of plastic. After taking care of all costs, banks cannot make
much money as only 40% of their customers pay interest on
rolled-over credit.
Learn how financial
charges are levied on
Source: Link
credit card: Link
 Many issuers have started blocking inactive and
dormant cards, which carry a cost for the bank in the
form of billing and postage charges. In addition, there
is a risk that such cards will be used as a last resort
when the customer is faced with financial troubles.
 Many banks have shifted focus to premium segment
credit cards, where delinquencies have been
lower, and the competition in this space is likely to
heat up.
 ICICI Bank Ltd, the country’s largest private sector
lender, has closed about 1.5 million accounts of credit
card customers and brought down the total number to
around seven million.
 Banks have stopped chasing customers to cut losses. A
few banks are revisiting the business model and plan
to start charging annual fees, while all are raising the
income threshold limit for new customers.
 They are also cutting down the credit limit for the
existing customers.
 One way of increasing the credit card use could be by making all
utility payments through cards. One can use credit cards for
paying petrol bills, mobile phone bills, insurance
premiums, airline and railway tickets, besides other consumer
goods. But there are many other payments that cannot be made
through credit cards even now. For instance, school tuition
fees, water tax and other municipal taxes, electricity bills and
fees for doctors and clinics, although some hospitals have now
started accepting cards.
 Steps taken to make all utility payments through cards,
◦ e-seva in Andhra Pradesh, that ensures all utility bill payments at one point
through cards. [Link]
◦ Kerala has launched a project called "Friends" that works on the same
model. [Link]
 Increase in the distribution of Electronic Data Capture
(EDC) terminals. These terminals, which process credit
and debit card payments, are put up by the card-
issuing banks.
 The government too did its bit by waiving the tax on
credit cards. Currently, only 3.5% service tax is imposed
on credit card transactions.

Source: Link
 The number of debit cards issued by banks
grew at a CAGR of more than 43% from FY
2006 to FY 2008.
 There were over 102 Million consumers with
slight more than Rs. 125 Billion debit card
spending during FY 2008.
Your inputs on this topic will be appreciated.

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