Credit cards catch on in smaller cities

That credit cards are a largely metro phenomenon is a myth, according to a recent ICICI Bank study.

It said the average growth rate of cards in metros such as Delhi, Mumbai, Chennai and Bangalore was 69 per cent in 2003, while Tier II cities like Chandigarh, Ludhiana, Pune, Coimbatore and Indore weren't too far behind, with a growth rate of 66 per cent.

Credit card use in the country is now driven largely by the retail industry. According to ICICI Bank's data, mined from its 2-million-strong credit card user base, of the Rs 12,000 crore credit card spending pie, only 20 per cent goes to non-retail purchases.

Nearly Rs 9,600 crore is spent on retail, out of which about Rs 1,080 crore is being spent in malls and other organised retail locations.

Purchases like clothing, jewellery and eating out at restaurants, which accounted for just 21 per cent of the overall spend in 2002, have now risen sharply to 45 per cent.

"It shows that retailers could tie up with credit card companies and marketing firms to grab a bigger share of the money spent in malls," V Vaidyanathan, senior general manager (retail banking), ICICI Bank, said.

Credit card use is growing at around 35 per cent annually and plastic spending in India is expected to reach Rs 30,000 crore by 2010 from Rs 12,000 crore in 2003 and Rs 8,650 crore in 2002, says the study.

The number of users too, is growing at a compounded annual rate of 31 per cent. While in 2001, the number of credit card holders was estimated to be 4.92 million, the number breached the 9-million mark last year.

"A 30 per cent growth rate for credit card spends leading up to 2010 seems achievable. The increasing frequency of foreign travel by Indians can push the growth even further," said Pushpendra Mehta, a consultant with the credit card consultancy CCMC.

"We grew at over 30 per cent last year, both in terms of billings and the number of cards issued. This year, too, we're hopeful of retaining the growth rate," said Manoj Adlakha, vice-president (consumer business), American Express.

However, there is a cloud on the horizon: nearly 25-30 per cent cards issued in the country remain un-activated. "The unused cards are becoming a major expense for banks, as the cost of issuing a credit card can run up to Rs 1,500, taking into account the cost of customer acquisition, application processing and card issuance," said an industry source.

"High delinquency rates can derail the growth of the industry. Banks and credit card companies should make the eligibility for card issuance tighter," said Mehta of CCMC.

Despite the rapid growth of credit card users and cardspend, less than 1 per cent of total consumer spending in India is charged on cards.

In the US, it is as high as 30 per cent, and in smaller, more wired geographies like Singapore, the contribution of credit cards can go up to 40 per cent of the overall consumer spending.