Credit card slump tells slowdown tale
Credit cards are telling the story of an economic downturn. Both the issue of cards and spending on them have seen sharp reductions in recent months, say industry officials.business Updated: Aug 11, 2009 22:10 IST
Credit cards are telling the story of an economic downturn. Both the issue of cards and spending on them have seen sharp reductions in recent months, say industry officials.
With the corporate world tightening its belt to tackle pressures arising from the industrial slump and the fallouts of the Western financial meltdown, corporate cards – the kind important-looking executives flaunt and spend largely on travel and entertainment – are not what they used to be.
Roughly every fourth credit card issued in the country is for corporate usage in India, which has some 2.5 crore (25 million) cards. Though there is no clear data yet, industry officials say payments on these accounts have fallen drastically in the past four months.
Companies have cut back on perks for employees as part of their larger cost-cutting drives, hitting the average monthly expenditure on corporate cards which a year ago ranged between Rs. 25,000 and Rs. 75,000 a month.
“Most entertainment and travel related spendings comprising air fare and hotel bookings were earlier taken care of by plastic money, but now we have seen that there has been a significant drop in this area,” said Vijay Mehta, director, Credit Card Management Consultancy.
To stop loan defaults that could raise their non-performing assets, banks and credit card issuers have started blocking inactive and dormant cards, which could be about 40 per cent of the total number of cards.
Inactive cards add to the cost for the banks. Reserve Bank of India data shows that about three million credit cards were withdrawn in 2008-09. The number of cards fell by 3.32 lakh in the month of April alone.
The default rate for plastic money has gone up to over 10 per cent as against 6 per cent four years back.
However, the growth rate in number of cards in 2008-09 dropped to only about 10 per cent from a 30 per cent clip for the earlier five years.
However, Standard Chartered Bank’s head of credit cards, RL Prasad, said his bank had not been affected by the slowdown.
“Though there has been a curb in corporate spending, our portfolio has not been significantly impacted,” Prasad told Hindustan Times.