Credit is no longer king?
In Singapore, everyone aspires for the 5Cs – Car, condo, Cash, Credit Card & Club membership. As countries like India grow economically, its natural for more and more people to have similar aspirations. But what we are seeing as per this article in Bloomberg is the decline in credit card business in India.
Its normal to see people carrying 4-5 credit cards in their wallets in Singapore. I remember having read some survey long ago that a Singaporean woman carries more credit cards than men. So much is the spending power of a Singaporean woman that one of the biggest bank in Singapore, UOB issues a credit card exclusively for women. They even have a punchline “The men dont get it“.
The reason cited by this article is the tightening of the unsecured loan portfolios. Where does it leave the gen Y now? Will this lack of disposable income affect the growth of the Indian economy? Afterall, the Indian government is banking on this new generation to push the GDP growth to more than 10% annually. Or is cash the new king?
The number of credit cards being used in India has fallen by around one-third or 35% over the last two years. The sharp drop is being attributed to banks’ move to cut unsecured loan portfolios and defaults.
You might have noticed that those annoying phone calls from banks pushing credit cards have stopped. If you haven’t, you may be surprised to know that one crore credit cards have gone out of circulation over the past two years. There were 2.83 cr credit cards in April 2008. It’s down to 1.83 cr in March 2010.
Banks aggressively selling credit cards have became cautious after suffering defaults. While officials didn’t disclose the extent of their losses, the numbers are clearly quite high.
Another article in Moneylife on the same issue mentions that the credit cards have become unprofitable after having suffered huge losses.
Ever wondered why there are fewer calls from telemarketers offering you a platinum, lifetime free credit card? It has nothing to do with the Do Not Disturb (DND) facility from telecom operators. Credit cards have become unprofitable, especially after various banks suffered huge delinquencies in 2005-07, the boom years. Since the bankers or card issuers are not earning much money on credit cards, you now have to really struggle to get one.
A few years ago or before the 2008 recession, people used to receive a lot of marketing calls for credit cards, free for life from any annual fee. Now the trend seems to have reversed. With the slowdown, many people defaulted on their credit card payments. Usually, during a slowdown, the number of defaults goes up rapidly. However, people don’t default on their home or car loans, since there is a danger of the creditor taking possession of the collateral. However, the same is not true for a credit card. Even if the user defaults on his credit card payment, the recovery takes much more time.
Above picture courtesy: Deems