CHENNAI: In a deja vu of sorts, banks and credit card companies are in high alert mode again, with some even blocking cards if minimum dues on monthly payments are not made within the stipulated time.
Though banks are quick to point out that they give sufficient notice before they actually start the card disabling process, there have been instances where some private banks disabled cards within 10 days after the cut-off date.
“We give a sufficient window period of 72 days from the due date before we disable the card,” said a spokesperson of Kotak Mahindra Bank. SBI Card also gives a payment window of 75 days for payment of minimum dues of the monthly statement, failing which the company resorts to card blockage.
Credit card delinquencies or bad debts peaked in India to 6% (of the total dues outstanding) in the aftermath of the 2008 financial crisis. Post that, the industry witnessed consolidation with several card issuers exiting the business. Banks started to adopt a more stringent approach with respect to new customer acquisitions that included sourcing the right ones by doing a recce on their past financial history and credit scores and also determining card limits before issuing them.
“Right now, delinquency levels are at 1.5%. From an industry standpoint, there is some risk build-up on account of the external environment,” Pallav Mohapatra, CEO of SBI Card, said. Officials add that an economic slump results in fall in disposable income (either job loss or marginal salary hike), which in turn impacts repayment. On their part, industry observers state that banks are adopting a ‘portfolio management’ approach with respect to credit cards and other retail lending activities.
“They are actively looking at your portfolio at regular intervals (like every quarter or half yearly) to determine strategies that include collection,” Harshala Chandorkar, senior V-P, consumer relations, Credit Information Bureau (CIBIL) said. CIBIL is India’s apex body providing credit information.
So if you have got two or more cards from other banks as well as a personal loan before your next review, your risk profile would be different when compared to a single-card holder. “We continue to closely monitor the delinquency levels,” the Kotak spokesperson said. According to such observers, there are no standard rules with respect to card blockage and is entirely dependent on the individual bank’s internal credit policy. “It is entirely up to each individual issuer on what to absorb and how much to absorb,” Mohapatra said.
On their part, banks and companies are also actively encouraging customers to use alternative channels for card payment such as net banking and mobile banking. “Around 65% of our card payments now happen through alternative channels,” Mohapatra said.
Organisations such as CIBIL are also pitching in by holding awareness camps on the nitty-gritties of card payments, including minimum dues. “A lot of customers have misconceptions about minimum dues. They are not aware that they would have to pay a high interest on the balance,” Chandorkar said. For instance, if the monthly due on your credit card is Rs 100 and you have paid the minimum due of, say, Rs 2, you would be charged a high rate of interest (35%-40%) on the remainder amount (Rs 98).
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Courtesy : Times of India