Credit card companies are encouraging existing customers to revolve their credit and promoting card use by reducing interest rates and going in for co-branding of cards.
Last month HSBC reduced the annual interest rate on its credit cards by 600 basis points to 31.2-33.6 per cent. SBI Cards too recently reduced the interest rate on its fixed deposit-linked credit cards to as low as 18-27 per cent per annum, from 37 per cent earlier.
The move by the companies came at a time when the credit card companies were struggling to add numbers. The total outstanding credit cards in the country have remained stagnant at 17.60 million levels since April 2011, compared with the 27 million-levels seen at the peak of the business in 2007-08. Debit cards on the other hand have been seeing growth every passing month with 263 million debit cards outstanding, as of December 2011.
“Unlike the peak of the credit card crisis in 2007-08, when delinquencies were as high as 17 per cent, delinquencies in the credit card business has fallen significantly. The industry average is at about 4 per cent. Users have become more responsible and we encourage them to use their credit cards to make big purchases and revolve their credit payment cycle,” says Kadambi Narahari, CEO, SBI Cards.
Revolving a credit cycle in a card means paying the minimum balance or above it and repaying the remaining outstanding amount in the subsequent cycles. In such cases, an interest rate will be chargeable on the unpaid amount. By reducing this interest rate, companies are hopeful of encouraging the customer to make large purchases and repay it slowly.
For credit card companies, a larger part of their revenues come from such interest rates that they can charge on customers using a revolving payment cycle. Customers who repay entirely every month help only in getting transaction commission from the trading agency.
Industry members admit that credit card users have become highly responsible unlike the reckless spenders and borrowers of cash against credit card as seen during the crisis in 2008.
Credit card companies have also identified launching co-branded cards as a way to add more value and attract a newer target market. Banks like HDFC and Indian Overseas Bank have tied-up with American Express Cards to launch premium cards for their customers.
“We have undertaken several initiatives especially in the card space to improve our card propositions to potential card customers. Our new co-branded card with MakeMyTrip offers great benefits to our customers as well as our partner,” says Manish Sinha, Head, Consumer assets, HSBC India.</div>