Banks in order to lure the customers keep introducing reward schemes and give special privileges and offers on credit cards besides this half the cardholders revolve payments and pay just the minimum amount each month.
Sachin Khandelwal, head - cards product group, at ICICI Bank pointed out, “The number of people who revolve payment is about half the customers in India for the industry. In terms of customer numbers it is about 35-40%” He said, “But that would be half the book value or even 50-65% for some banks.”
ICICI Bank till now has issued about 9 million cards since 2000; however Khandelwal declined to put a number to the people who revolve credit at ICICI Bank. But, he told DNA Money, “We are on the higher side.”
Mostly people who revolve credit pay just the minimum amount asked by the card company before the due date and agree to pay the remaining dues at a later date. The issuing bank charges interest on the overdue amount.
According to analysts there is nothing wrong in high revolving rate of credit cards. In fact, they say such an indicator is a sign of a maturity of the market.
Tarun Bhatia, head corporate and government ratings, Crisil pointed out that a higher revolving rate means customers are using the credit card as a loan product. He added in developed markets the revolving rates for credit cards are higher than 80%.
“The revolving rate in terms of value was about 30-35% a few years ago. It has now gone up to 50-60%, but that is not a concern, the concern will only be when people who are revolving don’t really have the credit worthiness to repay their loan,” he said.
Bhatia says the revolving rate might decrease marginally as banks tighten their lending norms to focus on better quality and high income customers.
ICICI bank has introduced several options so that they can keep a check on such cardholders who revolve. The options include equated monthly installment (EMI) option or conversion to a personal loan for people who cannot clear the entire outstanding in a month.
“Suppose you have spent Rs 70,000 when your disposable income is Rs 30,000. Then you start revolving at a very high rate of 3-3.35% and the charge keeps adding up. So you can call up and convert the transaction into installments,” Khandelwal said.
If ICICI Bank get in a tie-up with the merchant who sell goods, customers can get an interest rate of 0-12%.
“Otherwise we price the EMIs at 18%.” Khandelwal said. “We encourage EMI, as they are convenient for customers against the credit card charge are 36%,” he said.
“We have also brought it (the EMI facility) to merchants. Instead of calling customer care you can swipe the card and convert the payments into EMIs at the swipe itself. You tell the merchant that I want the 6 or 9 or 10 installment option,” he said.
As an offshoot of the same, the bank has launched an EMI card. “We launched the card in 2006 and have been pushing it for one year,” Khandelwal said.
Under the card, one gets the option to choose between Rs 1,000-4,000 of payment per month, which draws a limit. For instance you choose the 2,000 or a 4,000 card and you buy a refrigerator and you start paying installments. Later on you buy a TV, this amount will be added in to your basket, and however your tenure will change.
The credit card head clarified that they make sure that the customers do not get carried away.
The other option ICICI bank has for its customers is to convert the outstanding amount to personal loans. Khandelwal said, “Sometimes you don’t want to pay Rs 75,000 in one shot, you are not able to. So if you can, do it in 2-4 installments. Beyond that amount convert it to a personal loan.”
He expects positive response to the installment story on the travel and consumer durables segment. Most of the ICICI Bank’s credit cardholders today spend on travel and hotels put together. “This has really grown in the last two years. Airline tickets and domestic and overseas holidays are the largest, fuel is the third largest spend, followed by jewellery, retail garments and retail outlets,” he said.
ICICI Bank has done away with the post dated cheque model for consumer durable loans, in favor of the “cost effective and quicker” credit card model this March.
“We have realized that in the consumer durable business, only one-seventh or one-eighth (roughly 12-14%) business was on loans and the balance 7 out of 8 customers were anyway using a credit card.”