CREDIT CARD USERS GET A LOAN LIFELINE

Conversion Offer To Curb Defaults

George Smith Alexander & Vidyalaxmi MUMBAI

    BANKS are increasingly allowing borrowers to convert credit card dues into personal loans to prevent defaults triggered by inflation and rising interest rates. All leading banks are offering investors an option to pay for purchases in instalments. While some are being proactive, others are offering them as part of a restructuring package after classifying the customer as 'delinquent'.
    According to the Reserve Bank of India (RBI), credit card transactions amounted to over Rs 60,000 crore between May 2007 and May 2008. RBI's data shows that around 20% of card transactions were rolled over resulting in Rs 12,000 crore of credit card receivables, which are classified as loans by banks. In the previous year, the amount classified as loans was less than 10% of credit card transactions. Rising interest rates and prices are eating into the disposable income of borrowers, thus increasing the chances of default.
    Credit card dues, after the initial interest-free period, attract interest rates of 18-38%. Against this, personal loans are available at rates starting from 14%. Although this facility of allowing cardholders to pay for purchases in instalments has been available for some time, banks are now becoming proactive. In some cases, banks make the conversion offer as soon as the customer undertakes a large transaction. Other banks make this offer when a customer fails to make a large payment. At present, SBI Cards offers the EMI scheme on transactions of more than Rs 2,500.
    Banks start monitoring customers, who have not been consistent with their payments. ICICI Bank head of cards group Sachin Khandelwal said: "We have an idea about the customers' spending pattern through the transaction monitoring alert system. If a customer spends an average of Rs 8,000 on his credit card every month and suddenly we witness a transaction of Rs 50,000 billed on his name we call up the customer. We inform the customer that he has an option to convert it into EMIs, which could weigh less on his pocket."
    "If a customer planning to buy an appliance for Rs 20,000, ends up spending Rs 40,000 on a higher-end product, we offer these options to customers at the store itself," Mr Khandelwal added.
    Cards have also replaced the traditional way of consumer durable financing through dealerships. Citi offers the conversion of the outstanding on cards into personal loans. However, these customers will still be reported to the credit bureau. Citibank business manager-cards Sandeep Bhalla said: "Customers, who become delinquent, are also offered special instalment programmes called 'settlements', which ensure structured payments in a timely manner and reduce their overall credit burden. Once again, Citibank works directly with customers to understand their overall debt and evaluates their cash flows to ensure that this personalised payment plan is affordable on a monthly basis throughout the tenor."
    He also added that the bank cross sells instalment loans to customers to meet their purchasing and payment needs through marketing efforts. "These are designed and delivered after having a conversation with the customer on their overall needs and their ability to pay. A customer can manage his monthly payments to Citibank along with their other payment obligations. These promotions are offered through certain preferred vendors at points-of-purchase or on customer's request after their purchase," says Mr Bhalla.
    george.smith@timesgroup.com 

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