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Thursday, September 26, 2013

HDFC Bank raises rate on credit cards amid slump

HDFC Bank will charge 3.25% interest rate on credit cards from October, up from the current 3.05% and 3.15%, besides going slow on sourcing new customers in a tough macroeconomic environment.

"On certain cards, we were charging lower interest rates than the rest of the industry. Hence we have brought the rates on a par with the industry," said a senior official of HDFC Bank, India's leading issuer of credit cards and the country's second-largest private sector bank.

The bank has reduced its monthly sourcing of new customers from a peak of 100,000 to 65,000-70,000, the official added.

At June-end, HDFC Bank had a portfolio of 5.94 million credit cards, down from 6.56 million in May. Yet, it retained its position as the leading issuer of credit cards in the country, ahead of its rivals, including ICICI Bank, Citibank and Axis Bank.

"We decided to reduce the number of inactive cards. This is an ongoing process where banks churn their portfolio. We are being prudent and cherry-picking customers.

We continue to source good credit and get market share among the high net worth customers," said the official, who did not wish to be named, adding that the bank's portfolio was skewed towards middle and upper income individuals.

Most banks began shrinking their credit card portfolio in late 2008 after customers started defaulting on payments in the wake of the global credit crisis.

"There is a slowdown in the economy. This could lead to job losses in some sectors.

However, there is no evidence of it so far. In the medium term, there is a chance that credit card spends and outstanding on cards go up. We have to be watchful of the unsecured lending book," said the bank official.

The percentage of non-performing assets in the credit card portfolio of banks in the country almost tripled to 15-20% in 2009-10 from 5-8% in 2008-09. However, defaults are now down to below 5%. After the 2008 crisis, Deutsche Bank, Royal Bank of Scotland and Barclays exited the credit card business.

Source: EconomicTimes


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