In an email response, Archana Handa, vice-president, corporate communications, GE Money, said: “SBI Cards continues to be the No. 2 credit card player in India, despite the tough market environment for consumer finance. In our efforts to continue being a leading player and face the industry challenges in the coming year, some of our strategic initiatives include launching innovative new products to meet the needs of different customer segments, increasing penetration in the SBI customer base, and further enhancing the customer experience of every SBI credit card holder.”
An executive in the banking business, who is familiar with the development but does not wish to be identified, said the company chased new customers and is now “paying for it”.
“Till recently, SBI Card was adding around 25,000-30,000 new cards a month, but a mandate was given to the top management to raise this level to 100,000. As a result of this, the company compromised on the quality of due diligence. The loans that have turned sticky are so small that it’s not worth filing legal cases against the borrowers as the cost of fighting such cases will be more than the money involved,” said the source.
This aggressiveness in customer acquisition is evident from the fact that the company, which took four years to issue a million credit cards, took only three years for the next million, and only one for the third million.
SBI and GE joined hands in 1998 to float two firms for the credit card business. SBI holds 60% stake in SBI Cards, the credit card marketing joint venture, and GE Consumer (Mauritius) Investment I Ltd 40%. In the processing joint venture, GE Capital Business Process Management Services Pvt. Ltd, GE Consumer (Mauritius) Investment I Ltd holds the majority 60% stake and SBI, 40%.
SBI Cards started its operations in 1998-99, made its first net profit in 2003, and continued to do so until 2007 when it recorded a profit of Rs58.76 crore. As on 31 March 2007, it had a paid up capital of Rs250 crore and reserves and surplus of Rs111 crore.
Apart from silver, gold, classic (international) and platinum cards, SBI Cards also offers at least eight co-branded cards such as Hero Honda SBI Card, SBI Railway Card, LG SBI Card, SBI Vishal Mega Mart Card, SBI Lifestyle Card, SBI Social Card, GoAir SBI Credit Card and SpiceJet SBI Card.
In August 2007, SBI Cards entered the premium card segment by launching SBI Platinum Card in association with Visa International. Around the same time, it announced that it would expand its presence to 150 cities by March 2008 from 110 cities. It is not known whether it has covered 150 cities already or slowed down in its expansion plan in view of the loss and rising NPAs.
According to data from the Reserve Bank of India, the credit card industry’s growth in India has slowed substantially, from 33% in fiscal 2007 to 18% in the first three quarters of 2008. And growth in card spends has come down from 22% to 18%.
Personal consumption through credit cards is one of the lowest at about 1% in India, compared with the global average of 8.6%, Asia Pacific’s 6 % and China’s 3%.
Rising NPAs in its cards business is not a good news for GE Money, which has been on the lookout for a strategic partner. It has already invited bids for a stake in its personal loan and mortgage business and people familiar with the development say the entire process of evaluation and stake sale may take a few months.