Apart from interest charges, now get ready to pay an annual fee on credit cards as well. Given the increasing rate of delinquencies on credit cards, banks may soon go back to the practice of issuing cards selectively like other financial products based on income documents and other parameters, say bank officials.
While this was the practice followed in the initial phase after credit cards were introduced in the country, in the last few years banks have been issuing credit cards indiscriminately to attract more customers. However, this will soon change and annual fees on credit cards in some form are expected to come back because of high cost in issuing and maintaining credit cards.
Mr Shameek Bhargava, Managing Director and Asia Pacific Head of Credit Cards Deutsche Bank, said: “Fees will come back because the profitability of the banks is impacted due to free credit cards.”
Deutsche Bank, with a base of over 5 lakh credit cards in India, charges an average one-time fee of Rs 7,000 across its credit cards.
“There are signs of some stress on repayment from self-employed customers, but we feel, this is temporary, as there is willingness to pay,” Mr Bhargava said.
Officials from other card issuing banks also agreed that there are plans to charge annual fees in light of the increasing defaults.
ICICI Bank, with a card base of 75 lakh, charges annual fees between Rs 3,000 to Rs 7,000 for the Signature card, Amex Ascent, Singapore Airlines and British Airways cards. For over two years, it has been offering a mix of both fee and free credit cards and will continue to charge fees for specific products, said a spokesperson from the bank.
Banks usually waive fees for those customers from whom they are able to earn a substantial spend income or interest income. So, if the card holder is not using the card, the bank should be able to at least earn a fee on it, is the logic behind resuming the practice of fees, said bank officials.
HSBC Bank, which has a card base of 50 lakh, charges fees on all its cards. However, from time to time the bank offers fee waiver based on specific acquisition campaigns and strength of relationship with the customer. The annual fees charged across its credit cards ranges from Rs 350 to Rs 3,999.
Mr Ravi Subramanian, Head-Consumer Assets, HSBC Bank, says, “In India card usage is picking up, but it has not picked up enough to be profitable. The fee or revenue is critical for the card issuing bank and it is here to stay. Banks that went berserk and issued free cards will now use more discretion and offer free cards only to those customers who use it well.”
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