Monday, January 4, 2010


Credit Card - The business: The advent of credit cards (popularly known as plastic money) has enabled access to easy money to the cardholder. The huge demand for this form of credit has resulted in sharp spike in number of credit cards in circulation. Financial institutions including banks have started increasing their exposure to this high-risk high-return business to tap the rising demand.

The credit card enables the holder to defer the payment, (for a particular purchase made) to the card issuing company over a certain period of time. The lending company earns service charges as a compensation for the credit utilized. In addition, the delayed payment towards the dues enables the lending company to charge interest which is typically higher than any other form of advance.

Aggressive stance resulted in rising NPLs
Large private sector banks (especially ICICI Bank, HDFC Bank Axis Bank) were among the first few players who entered this niche business segment. The high-yield earning business and limited intervention from the central bank these banks to rapidly increase their exposure to the segment.

Changing environment signals towards policy changes
The credit card business is an unsecured loan with no collateral and the global downturn during the last fiscal year and had compelled card issuing companies to reduce their exposure to this risky segment.

To read the full report: CREDIT CARDS