{ INFORMATIVE MATERIAL } Credit Card Woes

It is estimated that currently there are 25 million credit cards in India 40% of which are actively used. It is further estimated that consumers in India spend an average of around Rs 4000 per month on their credit cards. But nowadays India also is in the grip of financial crisis and overall default rates of the credit cards have risen by almost 2% in the past year to 10 -12% of the turn over.

 The SBI cards, the nation's second largest card issuer is likely to report a loss for the consecutive year as defaults on credit cards payments have mounted. The SBI Cards, which is owned by the State Bank of India and the US- based GE Money in the 60:40 ratio, reported a loss of Rs 600 million on total income of 4400 million in the six months ended September 30,2008.The card issuer had suffered a loss of Rs 1500 million in 2007-2008 against  a net profit of Rs 600 million in 2006-2007.

A senior official of the SBI Cards, who did not want to be identified, said, "We have consciously slowed down sourcing customers by more than 50 percent from a peak of one hundred thousand cards a month last year to 20,000 to 30,000 a month now to ensure a good portfolio. It's a difficult market." He said credit checks have increased while the minimum salary criterion for issue of cards has been revised to Rs 200,000 to Rs 240,000 per year from last year's Rs 144,000.

An official of the Credit Cards section of the ICICI Bank said, " In 2007-2008 the credit cards business grew by 20 to 25 per cent. We had done 1.5 million cards in 2007 -2008 which has been reduced by 60 percent in the first 10 months of 2008-2009. The credit losses have increased by more than 1percentage point of the spread between lending rates and cost.

Because of increase in the default rate of credit card payments, many banks are invading the savings accounts of customers not paying their bills. Several banks that issue credit cards have agreements with customers giving them the right to tap into their savings accounts with them to set off overdue credit card debt. But the right was seldom exercised in the past, with banks preferring to negotiate with customers and giving them extra time to pay.

In the new scenario it is necessary for everybody to be extra careful about repayment of loans particularly the credit card loans. Some precautions are necessary in this regard:

• 1. If you have no intention of revolving on your card then ensure that you pay the entire amount outstanding on your card well before the due date so that the credit in your account happens in time.
• 2. Of all your debts, always repay your card outstanding first as it is the most costly form of debt.
• 3. If you have outstanding on multiple cards, repay the one with the maximum interest first.
• 4. Explore if you can repay your card debts by taking an alternative form of finance such as a secured or unsecured personal loan.
• 5. You can also ease out the repayment of your credit card debt by converting the dues on your credit card into equated monthly installments (EMIs), if your bank has this facility and you are eligible for it.
• 6. Ensure that you build a good track record of timely repayments so that you have a good credit rating with credit bureaus.
• 7. Make your financial health assessment at regular intervals, at least once a year.
• 8. The credit card is a convenience tool primarily and a debt management tool for emergencies. So use it only for emergencies.
• 9. Do not revolve credit on your credit card for long periods, as this is likely to invite financial crisis.
• 10. If you face difficulties with your card repayments, check with your bank for alternative ways of managing your debt.