The Hindu Business Line : New growth in credit card biz will be more disciplined: StanChart

Chennai, Nov. 22 Sachin Tendulkar is in his eighties on the last day of the Ahmedabad Test match, as we commence our interview with Mr Shyam Srinivasan, the Country Head of Consumer Banking, Standard Chartered Bank, India. Mr Srinivasan readily agrees to close the cabin door (to shut off the noise and in the process block his view of the television set in the hallway), although it will mean that he will miss seeing the century.

For the next 45 minutes, he fielded a range of questions fluently, on his portfolio and current responsibilities including the strategy, development and management of the bank’s consumer banking business in India.

Having worked earlier in Malaysia, and the Middle-East, as well as a four-year stint in India in between, he is acutely aware of the potential of the Indian market. As he points out, just the number of bank accounts in India is a multiple of the population of a number of countries in ASEAN.

He terms the market opportunity as ‘humongous’, while agreeing that the challenge is to make the business model profitable in a very ‘price sensitive and small ticket’ market. Notwithstanding the tumultuous year gone by, Mr Srinivasan is extremely optimistic about the future of retail banking in the country. 47-year-old Mr Srinivasan holds a Bachelor of Engineering degree from Regional Engineering College, Trichy, India and a Post-Graduate Diploma in Management from Indian Institute of Management, Calcutta. He recently completed the Leadership Development programme from London Business School. He has been a member of the Global Executive Forum (Top 100 Executives of the Group) of Standard Chartered since 2004. Excerpts from the interview:

A number of banks have exited or gone slow in different segments of the retail banking business in the country during the last year. How did you fare?

We have not exited the personal loan category. We are very much there. But our focus has been more on our existing customer base and we are trying to build our portfolio on a relationship basis. In credit cards, we have not slowed down. We are not aggressive like some of our competitors. We are happy with our growth.

How big is your card base now? How has it grown?

We have about 1.3 million cards now. Frankly, I don’t want to look at the numbers alone – because at one time we were bigger and then scaled down a bit. Our current run rate helps us be an active issuer in particular segments that are our focus areas.

The number of credit cards in the market has gone down from a peak of 28 million to about 21 million cards. What is this due to? Did Stanchart also cut card numbers?

Firstly, we didn’t contribute to the increase. We didn’t contribute to the decrease (laughs). And we were 1.3 million a year ago. What this tells you is that in a falling market, we have remained stable and have grown in few segments. We dropped a few and refilled a few.

The overall industry drop could be a consequence of many reasons. One, it could be the customer consolidating. For instance, if I had four cards earlier, now I have just one or two, because it is becoming unmanageable. Second, some banks could be pruning card numbers because they are experiencing credit challenges. And three, there is natural attrition because of expiry of the card and combined with non-issuance of fresh cards.

The card industry was growing at over 30 per cent per annum till a year ago. Every card issuer talked of huge untapped potential, the power of a 250 million middle class population etc. Isn’t this drop in numbers (25 per cent drop) far more serious than what is suggested by customer consolidation or natural attrition?

The potential is still there. You cannot take that away. There are still over 150 million bank accounts. It will come back in a different form. But to believe that credit card is the only instrument for retail credit is probably wrong. The credit card provides convenience of usage, offers a line of credit and offers discounts and other conveniences. But retail credit also comes through personal loans and overdrafts. Credit card as a mechanism may take a new form. But the need for credit doesn’t diminish.

If only the form is going to change, and the need is the same, what explains the difference in rates that prevail between a personal loan (between 15 per cent and 20 per cent per annum) and credit card rates (between 24 per cent and 45 per cent per annum)?

The personal loan is a term loan, while credit card is a revolving credit. And revolving credit is a sudden demand credit. Even for a bank, the cost of funding a term loan is different from funding a credit card. And besides this, there is the cost of servicing, collection and recovery which are higher for a card than for a term loan. These drive the cost of money.

Are Basel-II requirements forcing banks to cut card limits (since there is a charge for capital on the unused card limit also) as well as card numbers?

I don’t think that is driving the reduction. The reduction is happening because banks are looking at the customers closely and finding that some of them have many cards and are looking overleveraged. It is a good discipline to moderate the line of credit.

In most markets that are in a growth phase, banks’ lending, in the absence of a third party credit bureau, is based on the fact that somebody has already lent to you and found you a good credit risk. So if you have taken Rs 100 from me, you are looking good for it.

But 3 months later, someone else comes and gives you another Rs 100 because I gave you – so you now have two loans to service – and that becomes a challenge.

Once the credit bureau came in, we get a picture of the full indebtedness of the customer and that gives us a very different behaviour pattern of the customer. The new growth that will happen will be a lot more disciplined and of better quality.

Related Stories:
Now, Stanchart ‘zeroes in’ on Satyamites’ credit cards
StanChart offers debit-cum-credit card

More Stories on : Interview | Credit Cards & Debit Cards | Foreign Banks

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New growth in credit card biz will be more disciplined: StanChart