Mumbai: An aggressive customer acquisition drive has taken its toll on India’s second largest credit card issuer, SBI Cards and Payment Services Ltd (SBI Cards), with defaults rising to possibly the highest in the industry.
The company is a joint venture between the country’s largest lender State Bank of India (SBI) and GE Money, the Indian subsidiary of General Electric Co., a conglomerate that is also the world’s leading consumer finance firm with more than $200 billion (Rs8 trillion) worth of assets and 130 million customers.
SBI Cards, which has so far issued about 3.5 million credit cards, has posted a net loss of Rs186.61 crore in the quarter ended December 2007, its first since 2003, wiping out a substantial portion of its net worth (equity and reserves). SBI and GE Money pumped in Rs200 crore of capital into the company in the quarter.
What should worry the credit card firm more, however, is its rising non-performing assets (NPAs). As on 31 December 2007, its NPAs stood at 16.28%, possibly the highest among all credit card issuers in India. This means 16.28% of the total outstandings of customers could not be collected by the company.
Om Prakash Bhatt, chairman of State Bank of India. As a fallout of the loss and defaults, the top management of SBI Cards is being recast and Roopam Asthana, CEO of the firm, is on his way out
More than 28 million credit cards are in use in the country. ICICI Bank Ltd, the largest private sector lender, has issued the maximum number of cards, close to nine million. Citibank comes a close third to SBI Cards, having issued 3.4 million cards. Other large players in the business are HDFC Bank Ltd (more than 2.5 million), HSBC and Standard Chartered Bank (about two million each). Barclays Plc., the newest entrant in this segment, has issued around 500,000 cards in the past one year.
None of the banks reveals NPA figures for its credit card business but analysts estimate this at between 5% and 7% for most.
As a fallout of the loss and defaults, the top management of SBI Cards is being recast and Roopam Asthana, chief executive officer of the company, is on his way out. Asthana, the former head of the card division of HSBC, took over this assignment in 2004.
People familiar with the development, who did not wish to be identified, said SBI chairman O.P. Bhatt, and Yoshiaki Fujimori, president, GE Money Asia, who is also on the board of SBI Cards, are in the process of identifying Asthana’s successor, and that one of the deputy managing directors of the bank will be made the chief executive.
SBI also plans to play a more active role in running the company amid speculation that all is not well between the two partners.
Bhatt confirmed that SBI Cards has made a net loss in the quarter ending December, and said both the bank and GE Money have recapitalized the company. He denied that there is any rift between the two partners.