The Financial Express
The portfolio of credit card issuers has seen a sharp decline in revolving credit from customers after the Covid-19 outbreak. According to bankers, before the pandemic the share of revolving credit or revolvers was 40-45%, which has now declined by 10%.
“Based on what happened during Covid-19, people are now more cautious about revolving credit. Also, there are more options today wherein one can convert the revolver balance into equated monthly instalments (EMIs). People also know that when you take an EMI and pay instalments on time, your CIBIL score improves,” said a senior private sector banker.
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Credit card customers are typically categorised as transactors and revolvers. Transactors use their cards for spending, but prefer to clear their entire card bills by the due date. Revolvers are the ones who tend not to clear their dues in one go and pay interest on their outstanding. The third category is one which converts revolving credit into EMIs to reduce the interest burden. As far as credit card issuers are concerned, revolvers are more margin-accretive than EMIs.
“With attractive and instant availability of personal EMI loans at better rate, we observe shift (from revolvers) in customers preference for EMI based repayment,” Suresh Khatanhar, deputy managing director, IDBI Bank, said.
The fall in revolver rates is evident in the changing receivables mix of SBI Cards and Payment Services, the only listed credit card issuer. In the December quarter, revolvers constituted 24% of SBI Cards and Payment Services’ overall receivables, lower than 27% a year ago. At the same time, EMIs rose to 37% of overall receivables from 33% a year ago.
While traction for revolvers is unlikely to improve in the near term, issuers are attempting to make their EMI offers more attractive to improve their revenues.
“The impact (of fall in revolver rates) on revenue will certainly be negative, but it will be balanced if the erstwhile revolvers are not going delinquent after opting for EMIs and not revolving. The only way to address this is to expand the base of customers who will opt for EMIs, and we’re doing the same through newer offers and better, targeted communication,” Shailendra Singh, managing director and chief executive officer, BOB Financial Solutions, said.
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According to him, credit card issuers need to increase the base of customers opting for EMIs, both before and after making a purchase using their credit card. “We continue to work with both technology partners as well as merchants and original equipment manufacturers (OEMs) to ensure our cards have pre-purchase EMI offers across categories. We also time our offers and communication to the prevalent buying/spending need viz. pre-holiday travel spends or insurance spends during January-March every year,” he said.
“Multiple EMI promotions in terms of cashback campaigns and No Cost EMI are run with brands across categories like consumer durables, mobile, apparel, travel & home décor. We are also taking efforts to educate customers about the ease of availing EMI option while making bigger purchases,” Ambuj Chandna, president – consumer assets, Kotak Mahindra Bank, said.
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