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Rise in credit card spend a cause of concern

business Updated: Oct 08, 2008 01:33 IST
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The rising liquidity crisis in the financial sector followed by a slowdown in consumer financing and personal loans by

banks has led to a rise credit card spends in the festive season. Ironically, this is giving bankers nightmares.

Banks which so far have used every trick in the book to increase credit card distribution and spend are now developing cold feet. Industry experts believe that consumers may opt to pay by credit cards to defer cash payment.

“The current consumer spending pattern on credit cards could become a cause for concern in the near future as the banks are looking at reducing their credit card exposures,’ said a senior official at a leading state owned bank.

There has been a rise in spends on cards in the month of September and industry players are expecting growth to increase in
October, the head of credit cards of a private sector bank said. “It’s only the first week of this festive month and we expect a rise in the card spends.”

“Usage of plastic money has gone up significantly in the last one month, thanks to the increase in prices and acute liquidity crunch in the banking industry,” said Vijay Mehta, director, Credit Card Management Consultancy.

Banks have already stepped in with measures to curb their credit card distribution and have made eligibility norms for obtaining a credit cards more stringent. Many banks are now offering cards only to customers having an existing relationship with the bank.

The big fear: increase in delinquency rates if spends on cards rise due non availability of other forms of credit, like personal loans.

“Banks with customers having bad repayment history should be worried as this might lead to an increase of bad assets in their portfolio,” said an industry insider.

Most card issuers and banks are looking at lowering credit limits in to check rising default rates.

Meanwhile, interest rate on credit cards has gone up significantly over the past six months. The monthly interest rates on the outstanding ranges between 3 per cent to a high of 3.5 per cent. This means an annual rate of over 50 per cent.