Mumbai: India’s largest private sector bank, ICICI Bank Ltd, has withdrawn its lifetime free cards scheme, signalling a change in business strategy for consumer banking. The bank has decided to charge new credit card customers.
ICICI Bank had introduced the lifetime free card scheme in August 2005, an aggressive initiative to gain market share. The move forced other banks to waive fees on their card offerings.
After the global credit crisis in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc. in September 2008, most banks began shrinking their credit card portfolio as many customers started defaulting on payments.
The percentage of non-performing assets, or NPAs, in the credit card portfolio of the Indian banking industry has almost tripled—from 5-8% in fiscal 2008 to 15-20% in 2009.
With ICICI changing strategy, other banks too have started charging fees for credit cards. State Bank of India, which runs a joint venture with GE Capital Services for its card business, is one of them.
Rising NPAs are also forcing many card issuers to shift focus from the mass market to the premium segment.
For instance, Standard Chartered Bank has stopped issuing its gold cards—a mass market product—and is only offering platinum cards.
A gold credit card is an entry-level card, given to individuals with an annual income of Rs1.5-2.5 lakh.
To qualify for a platinum card, one would generally need to have an annual income of Rs6 lakh and more.
An email query sent to Standard Chartered Bank remained unanswered.
Citibank NA, HDFC Bank Ltd and Axis Bank Ltd, however, continue to offer free credit cards. Axis Bank is a relatively new entrant.
In an email response, ICICI Bank’s spokesperson said: “We constantly review our product pricing, based on market dynamics in line with our business strategy. Currently, we are not offering free-for-life cards for any new customers. We have a set of existing customers who have been offered a free-for-life card.” These customers will continue to use the cards.
“Our credit card product range provides powerful benefits and convenience to our customers and these will be fee-based,” he added.
ICICI Bank, the market leader with 7.5 million cards in 2009, now shares its position with HDFC Bank with its card base shrinking to five million. HDFC Bank, which had a credit card base of around 4.4 million a year ago, has scaled it up to five million. “The bank is adding about 80,000 new cards every month,” said HDFC Bank’s spokesperson.
SBI’s credit card portfolio has shrunk from three million to 2.8 million in the past two years. Abhay Kumar Singh, chief executive officer, SBI Cards and Payment Services Pvt. Ltd, said: “We are focused on offering strong value propositions to our customers. Right now, SBI Cards offers only fee-based cards.”
Citibank, which had a card base of around 3.8 million in January 2009, had scaled it down to 2.5 million by the end of December 2009.
“Citibank has not altered its credit cards strategy from no-fee to a fee-only structure. We are very much in the market and continue to offer cards with a number of value-adds,” said Sandeep Bhalla, business head for cards for Citibank India.
The credit card base of Hongkong and Shanghai Banking Corp. Ltd, India, or HSBC, remains stable at 1.5 million cards.
“We have not stopped issuing cards, but we are not aggressive as well. We are very selective,” an HSBC spokesperson said.
Manju Srivatsa, president-retail banking, Axis Bank, said the lender was issuing close to 20,000 cards every month and “we market it to only bank customers”. Axis Bank had a card base of 600,000 cards in 2009.
Analysts are not surprised at most banks seeking to shrink credit card portfolios. According to Abizer Diwanji, executive director of KPMG, a consulting and accounting firm, during the retail boom banks were very liberal in issuing credit cards. “Over a period of time they realized losses were very high as a credit card at the end of a day is an unsecured lending product,” he said. “To run a credit card business profitably, the delinquency should be less than 2%.”
In 2008-09 and 2009-10, credit defaults in India rose to double digits and this has forced banks to sell cards like a loan product only to credit-worthy customers, Diwanji pointed out.
With the Indian economy on a firm growth path, bankers, however, are bullish on prospects of business. Srivatsa of Axis Bank said the credit card market is recovering. “Banks are becoming more thoughtful on how they source business, and repayments are also picking up as customers are seeing a resurgence in their payment capacity,” she added.
Citibank’s Bhalla said the credit card market losses have slowed and the market has stabilized. “The industry losses peaked above 20% in 2009 and have been steadily coming down in 2010.”