Indians are cautious by nature. In comparison to the rest of the
world, the usage of credit cards by Indians is relatively low. Banks love
borrowers who spend on credit cards. This is because they charge anywhere
between 3 to 4% per month on the outstanding amount if you fail to pay the
‘total amount due’ in your credit card statement. This is the most expensive
way of borrowing.
Jefferies, a UK-based securities firm, observed recently that banks are
focusing more on offering cards that charge an annual fee rather than offer
them for free.
Five facts about credit
cards:
·
Borrowers are cautious and are revolving less money than before. Over
the past one year, 53% of outstanding balances are revolved. When borrowers
revolve credit, banks earn a higher interest income. This was over 60% a year
ago and over 80% in 2009. Total credit card outstanding as of July 2013 was Rs
23,100 crore, according to RBI data.
·
Banks primarily earn interest income on the money they lend. Of the
total interest income, credit cards account for less than 1% for most banks.
Jefferies observes that HDFC Bank generates 4% interest income from credit
cards, the highest among all banks. This means more customers of HDFC Bank are
revolving credit and paying a higher interest rate.
·
Ten banks account for 88% of credit cards issued in India.
· The four private banks (HDFC Bank, ICICI
Bank, Axis Bank and IndusInd Bank) put together now constitute roughly 66% of
the total credit card outstanding balances in the banking system.
· When you opt for a 0% equated monthly
instalment or EMI option, banks charge a nominal transaction fee. Point of sale
terminals, as banks call these mode of payment, have surged 50% over past one
year. HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank have an 80% share in
this segment, according to Jefferies.
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