Banks are again pushing credit card sales and their unsecured loans portfolio by targeting customers without an existing relationship with them. This practice was followed by banks before the Lehman Brothers crisis in 2008. However, after burning their fingers in 2008 due to the high default rates, they’d all stopped doing so. About a year before they resumed slowly, with care.
“Yes, we do offer credit cards and unsecured loans to customers not having an existing relationship. We believe we have a robust risk assessment framework ably supported by a maturing credit bureau, to underwrite such customers. We also use data from strategic alliances and partners to supplement the traditional risk management framework, wherever applicable,” said Rajashree Nambiar, general manager & head of retail banking products, personal & preferred segment (South Asia), Standard Chartered Bank.
Citi India is also doing this. “We are targeting customers outside our bank to maintain our market leadership position and growth momentum. The reason why this market went through pain in 2008 was not just because consumers did not use credit responsibly but also because the overall credit framework to provide banks with access to the exposure of individuals at an industry level was not robust. This resulted in loans being provided way above the ability of customers to repay,” said Muge Yuzuak, managing director, head of cards and unsecured loans, Citi India.
However, some are still cautious in a few segments. Hongkong and Shanghai Banking Corporation (HSBC) issues credit cards in the non-banking relationship space but not loans. “We are looking at growing our unsecured loans portfolio through lending to existing customers, where we can leverage our data analytics capabilities and knowledge of the customers to give loans that best fulfill the customer's requirements,” said Manish Sinha, head, customer value management, HSBC India.
Those in the sector believe the cautious steps they’ve taken will ensure the 2008 situation, isn’t repeated. Credit card dues at the end of August were Rs 47,911 crore, compared with Rs 27,835 crore as on August-end 2008 (Lehman filed for bankruptcy in mid-September 2008), shows Reserve Bank of India data.