Credit cards sitting on NPA time-bomb

A time bomb is ticking away in the credit card business in India. This segment is likely to face a lot of problems as the delinquencies in the card portfolio are very high.

"The auto loan portfolio had seen a blow-up some time before and some of the banks had exited it. There seems to be a similar situation developing in the card portfolio with delinquency rates as high as 10 per cent," said McKinsey & Company's principal Leo Puri.

HSBC and some other banks had got out of the auto loan market last year due to increasing competition. In recent times, both multinational banks and private sector banks have been facing high delinquency problems.

Industry officials pointed that NPAs in credit cards in one of the multinational banks had reached around the 15-18 per cent mark last year before being brought down lower.

One of the Indian banks which has been aggressive in the credit card market is also set to cross the 10 per cent NPA mark.

"Players like Citibank have a mature portfolio and have been into the market from the late 1980s. Other foreign banks have been aggressive in the market from 1995-1996 while Indian banks have a young portfolio," added Puri.

On the question of cutting down costs, he said overmanning in most of the banks and premises were the main cost components.

"We do not necessarily need to reduce the number of branches. The branches can be reduced from 70 to 80 manned branches to a 15 to 20 manned branches. There should also be real estate rationalisation," he said.

Charles Stitch, director, McKinsey's Asia-Pacific Financial Institutions Practice, said there are similarities in merchandising and that of retail banks.

"We have not seen the emergence of global retail banks except in cases of Citi and HSBC. Also, trends in retail banking across the world is similar," he said.

Like retailers, these retail banks are also looking at bringing down the cost to income ratio.

The five attributes among the top league retail banks were corporate leadership, marketing and sales, distribution efficiency, process efficiency and credit skills.

Stitch added that retail banks were spending more on system infrastructure and marketing like retailers.