Rising delinquencies and non-performing assets (NPAs) in the credit card business are forcing banks to reorient their outlook, from an aggressive sales strategy to inducting people who will focus on recovery and cleaning up the portfolio.
As a result, the past year has seen all the four leading players in the credit card business replacing their chiefs. In March last year, T R Ramachandran, business manager (cards) of Citibank was shifted as head of the retail banking division. He was replaced by Sandeep Bhalla, who had experience in the cards business in the US, in May. In October, Ramachandran quit Citibank to become CEO of Aviva Life Insurance.
Asked about the change, a Citibank spokesperson said in an emailed statement, “The last year has seen strong managers such as Sandeep Bhalla, Business Manager-Cards, and Harjeet Chopra, Country Risk Manager, join the India Consumer organisation from Citi overseas. Grooming senior managers who have experience across businesses, functions and geographies is critical to Citi's talent strategy and we take this task very seriously.”
Around the same time, SBI Cards appointed Diwakar Gupta, chief general manager, as chief executive officer of the cards business. Gupta replaced Roopam Asthana, who was brought in by partner GE Money. The move came after the company suffered a Rs 152 crore loss in 2007-08 on account of rising defaults. “SBI Cards has reinforced its top management to arrest the deterioration in asset quality,” a January report from ICRA said.
Besides Ramachandran and Asthana, ICICI Bank’s credit card head Sachin Khandelwal and HSBC’s Dheeraj Dixit were replaced recently. Dixit was replaced by Ravi Subramanian, who was co-head, consumer credit and risk, in March this year. Vinayak Prasad, earlier joint general manager reporting to the cards head, took over from Khandelwal this month. Khandelwal has been put in charge of remittances.
“It cannot be a coincidence that all the heads of credit cards have been replaced within 10 months of each other,” said a head of cards with a multinational bank.
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The recovery business was mostly outsourced earlier. However, the Reserve Bank of India (RBI) had warned banks to refrain from using strong-arm tactics for recovery during Y V Reddy's term as governor.
In October, RBI issued draft guidelines for recovery agents. These suggest that banks will be liable for the actions of recovery agents. RBI even said it would consider imposing a temporary ban for engaging recovery agents on those banks on which strictures have been passed or penalties have been imposed by a high court or Supreme Court or against its directors or officers (the ban could be made permanent in case of persistent abusive practices). The final guidelines are expected soon.
These impending guidelines have forced banks to create teams. In fact, in HSBC, Subramanian was asked to set up a recovery team and promoted only after the performance of the team was satisfactory.
Bankers said that these credit card heads are now directed to first clean up the portfolio and focus on premium customers as of now.
This marks a significant departure from a few years earlier, when card heads were mandated to increase market share. Now rising interest rates and growing uncertainties on the job front have led to rising delinquencies. The industry average of non-performing assets was pegged at 15 per cent in February.