One silver lining for the State Bank of India amidst its disappointing results was the turnaround of its beleaguered credit card operations during the last year.
The bank's credit card operations finally turned in a profit after many years of losses. The credit card business (run as a joint venture with GE Capital) provided it a profit of Rs 7.10 crore last year compared to losses of Rs 153 crore in the previous fiscal and Rs 185 crore in 2008-09.
The bank said its customer spends had increased 30 per cent to Rs 6,452 crore. Total customer spends of all credit card customers in the country during the last fiscal was around Rs 75,000 crore.
The last two years have been a period of consolidation for the credit card industry after witnessing a period of high growth in the preceding decade.
But high delinquency of borrowers and poor recovery mechanisms, compounded by poor underwriting of business by various banks and cut-throat competition contributed to great turmoil in the card industry. Delinquency rates were reportedly in the range of 20 per cent plus.
Over the past two years, the top card issuers have trimmed their operations and culled out cards that were creating problems.
As a result, the total number of credit cards which was at nearly 27 million three years ago, dropped sharply to about 18 million cards a year ago. It has hovered around the 18 million-mark for the last one year as companies consolidated their operations and focused on profitability rather than on building market share.
SBI Cards, which currently has about 2.3 million cards, had about 2.6 million cards a year ago. It issued about 0.4 million cards last fiscal but culled out about 0.7 million cards.
Its main competitor, ICICI Bank reduced its card base more drastically from about 7.5 million to about 4 million cards currently.
Banks also began to focus on targeting high net worth customers, trying to increase their spends.
Greater reliance on verification reports of CIBIL (Credit information Bureau) and reducing cash withdrawal limits, reducing credit periods and increasing penal fees were among the steps taken by the banks to limit losses. For some like SBI, it seems to have paid off.