Usage of plastic money is increasing with times but at the same times it is also increasing the worries of credit card companies. In September 2008, the transactions done through credit cards went up by nearly 20% against the previous month. Normally this would be a reason to cheer for the card companies but presently it has become a cause of concern.
The credit card companies are worrying because they think that rising usage of credit card may also result in higher number of defaults among these users.
RL Prasad, General Manager & Head Cards & Personal loans, Standard Chartered said, "Cards usage typically grows during the festive season starting from September. It is important to constantly monitor spends and take appropriate action to prevent defaults."
Sachin Khandelwal, Cards product Head of ICICI Bank said that a rise in the card usage of ICICI may not have any adverse effect on the bank as it was only extending to its existing customers with a good credit history. However the other card companies may worry about the rising default rate in the country.
ICICI Bank has recently slowed down on its credit card business in order to avoid such a situation. The bank is only catering to its customers who have sound creditworthiness.
The growth in credit card usage has mainly been due to the rise in interest rates and inflation. Both these factors have reduced the disposable income of consumers and forced them to use a credit card even for their day to day transactions.
Vijay Mehta, Director of Credit Card Management Consultancy (CCMC) said, "The rising interest rates in banks followed by the liquidity crisis in the financial sector have led to a rise in credit card spends this festive season."
"There is uncertainty all around. So people perhaps do not want to part with cash immediately even for their general shopping," added another executive from a credit card company.
Currently the default rate in credit card portfolio stands between 9% and 12% and the industry experts are expecting a rise in the credit card transactions in coming two months. This may again increase the worries of credit card companies which think that this usage may eventually result in higher defaults.