Credit cards market begins to recover after 2 year of slump

There are signs of silver lining for the country’s credit card industry as new issuance have picked up after near two year slump.

For the first time in over a year the industry has seen its first two consecutive months of gain in new issuance in October and November 2010 whilst indications are that December would complete the late 2010 recovery.

The gains in two consecutive months though small in numbers are an encouraging sign. There had been 1,861 new cards issued in October and a higher 2,861 in November. Prior to that the industry saw growth in two separate months — February and June with the card base increasing by over 7,000 each as per Central Bank data.

Industry analysts linked the modest yet consistent growth in October and November to Central Bank directed lowering of interest rates on credit cards as well as promotion by the issuers. To address the high margins kept by issuers on credit cards, the Central Bank requested that the interest rates on credit card advances should be reduced to 24% per annum as opposed to an estimated range of 36% to 46% charged previously.

Some issuers were initially reluctant to revise downwards on the premise that credit card advances usually carry high risk as well as factoring in the convenience aspect. However the CB directive was complied with.

Whilst pick up signs are encouraging the credit card industry has lot of ground to catch up with high card base enjoyed up to 2008. The base grew from 811,289 in 2006 to 917,418 by end 2008. The Golden Key collapse, resultant impact on rest of the financial services industry as well as high inflation and depressed economic conditions saw the card base decline to 840,509 in 2009. People either moved out of using plastic money or there was less inclination to embrace a credit card.



Though the numbers have shrunk the outstanding balance of the credit card industry has recovered almost to boom years. In 2008 outstanding balance was Rs. 33.3 billion as opposed to Rs. 21 billion in 2006 and it dipped to Rs. 31.3 billion end 2009 and further to Rs. 28.8 billion by July last year. In November 2010 it had moved back to Rs. 30.7 billion.

The industry is closely watching the upward pressure on inflation and prices of consumer durables and other goods. Issuers have been maintaining that using the card helps manage a person’s expenditure better in addition to benefiting from value deals. The latter by way of special promotions with intense competition by leading issuers has sparked renewed interest on credit cards, analysts added.  Given the slump, issuers now offer zero interest for two to three years on select purchases using credit cards in addition to a range of high discounts and special promotions.