You are on page 1of 143



FACULTY OF MANAGEMENT STUDIES In partial fulfillment of the requirements For the award of the degree






Certified that this project report titled “USAGE PATTERN OF CREDIT CARDHOLDERS IN CHENNAI” is the bonafide work of Mr. M NAGARAJA Registration number : 1030847 who carried out the research under my supervision. Certified further , that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.



DECLARATION I hereby declare that this project entitled “USAGE PATTERN OF CREDIT CARDHOLDERS IN CHENNAI” was sincerely done, during the period from Oct 2011.

The study has been undertaken in partial fulfillment for the Degree of Master of Business Administration at Jeppiaar Engineering College, Chennai affiliated to Anna University.

I also declare that this project has not been submitted to any other institutions or university, for the award of any Degree or Diploma.

Place: Chennai



Last but not the least. the Director Ms.D..D.A..(Ph. REGEENA JEPPIAAR. Ph.. N.A. I oblige to the Honorable Chairman. CHAPTER 1 RESEARCH METHODOLOGY Objectives of the Project .). M. N.L. I take this opportunity to convey my sincere thanks to the Head of the Department.. JEPPIAAR.B.. B.Phil.In the first instance. the principal Dr. B.. I would like to thank my parents and friends for providing all the necessary support throughout the study without which this study would be an unaccomplished task. for her valuable and invariable suggestion and encouragement in carrying out this project successfully. for their support and encouragement for the completion of project. Ph.. I take the privilege to extend my hearty thanks to my Internal Project Guide Mrs. for the cooperation and support given during the course of the project. Dr.D.PADMAVATHY MBA M. M. THANGAVEL.Tech.

To find out the satisfaction level of existing credit card holders. To examine the consumption pattern of credit card holders. 6. To study the demographic factors of credit card holders. RESEARCH METHODOLOGY . 4. 3.The primary objective of the report is categorized into following sub-topics: 1. 5. For calculating the table value for analysis with chi-square. 5% significance level is used. Secondary sources Secondary data has been collected from the internet. To know the using purpose of credit card by the holders. To suggest measures to improve the credit card system in India Data sources Primary sources Primary data has been collected through the structured questionnaire consisting mainly of the closed ended questions. Scope of the study All the questions have been analysed by adding up the responses against each alternative and answers from the various respondents. 2. The collected data has been subject to statistical analysis to draw inferences and suitable conclusions. journals. Statistical tools like chi-square and percentage are used. reference books etc. To assess the behavioural changes of credit card holders.

Further. The respondents are basically credit card users. The questions inquired the choice of credit card. Our sample consists of a total of 150 respondents. 2005). which has been collected from the credit card users with the help of a well drafted and structured questionnaire (see annexure). but they can be used in exploratory research for the generation of ideas (Malhotra. it is essential to mention two things: firstly. we have confined ourselves to Ahmedabad. and the users were given 28 statements. India.’ Sampling Plan Target Population: Credit Card holders Sample Size: 100 respondents Sampling technique: Convenience sampling . the respondents had to rate the credit cards according to the importance. who have been selected by following the non-probabilistic sampling. respondents (who were seen using/have possession of credit cards) were selected because they happened to be in the right place at the right time and secondly. in conveniencesampling. on the `five-point Likert scale. simple purposive sampling and convenience sampling techniques. In addition. For the collection of primary data. convenience sampling technique is not recommended for descriptive or casual research.The study is based on primary data.

 Involves gathering data that describe events and then organizes. Researchers Study gives the researchers the insight about the credit card system prevailing and the usage pattern and satisfaction level of the existing credit card holders. Probable subscribers New prospects may find it helpful in selecting the credit card company and the bank issuing the credit based on the satisfaction level of the existing credit card holders. 3. Banks Banks may come to know about the usage pattern of the credit card holders based on the demographics. 2. depicts.  Often uses visual aids such as graphs and charts to aid the reader Description Research takes a “what if” approach  Refers to the nature of the research question  The design of the research . purposes and consumption pattern and may aim to target new customers based on the derived facts.  Uses description as a tool to organize data into patterns that emerge during analysis. Research Design The research design that has been used is Descriptive Research.Beneficiaries 1. tabulates. and describes the data.

yet some of them might have biased their reply for certain sensitive questions 3. Limitations of the study 1. The study is confined to the city of chennai only. The duration of the study is also in accordance with the academic objective of the course curriculum. So in pursuit of academic exercise. The way that data will be analyzed for the topic that will be researched There are four methods of data collection under descriptive research. They are:  Surveys  Interviews  Observations  Portfolios The methods used for this research would be mainly by the response to the questionnaire by the credit card holders. the restriction on time has also brought into study some limitations. The respondents were generally co-operative. . 2.

Every bank had to earmark a minimum percentage of their loan portfolio to sectors identified as “priority sectors”. Eight new private sector banks are presently in operation.CHAPTER 2 INTRODUCTION TO BANKING INDUSTRY Banking in India originated in the last decades of the 18th century. Since then the number of scheduled commercial banks increased four-fold and the number of bank branches increased eight-fold. relegating it to commercial banking functions. which in 1935 formally took over these responsibilities from the then Imperial Bank of India. the Public Sector Banks (PSB) s found it extremely difficult to compete with the new private sector banks and the foreign banks. In 1969 the government nationalized the 14 largest commercial banks. Central banking is the responsibility of the Reserve Bank of India. This in turn resulted in a significant growth in the geographical coverage of banks. a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. After the second phase of financial sector reforms and liberalization of the sector in the early nineties. The next wave of reforms saw the nationalization of 6 more commercial banks in 1980. The new private sector banks first made their appearance after the guidelines permitting them were issued in January 1993. The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in a shift from Class banking to Mass banking. The oldest bank in existence in India is the State Bank of India. the Reserve Bank was nationalized and given broader powers. After India's independence in 1947. The manufacturing sector also grew during the 1970s in protected environs and the banking sector was a critical source. These banks due to their late start have access to state-of- . the government nationalized the six next largest in 1980.

the-art technology. Similarly.8 percent during 1969-99. The WPI Index (a measure of inflation) increased by 7.3 percent per annum. The share of foreign banks (numbering 42). but dropped to 4.2 percent respectively in deposits and 8. 3.41 percent. Banks’ investments in government and other approved securities recorded a CAGR of 18. while the growth in credit by SCBs slowed down to 15.2 percent as against 14.4 percent. The growth in aggregate deposits of the scheduled commercial banks at 15. regional rural banks and other scheduled commercial banks accounted for 5. Net profits grew by 40. The 20 nationalized banks accounted for 53. while bank credit expanded at a CAGR of 16.3 percent in FY00.2 percent of the deposits and 47.6 percent in FY01 against 23 percent a year ago.3 percent in the previous year. .75 percent in the first quarter of 2000-2001. 3.85 percent respectively in credit during the year 2000.1 percent share in credit. The industrial slowdown also affected the earnings of listed banks. which in turn helps them to save on manpower costs and provide better services.9 percent and 12. the State Bank of India (SBI) and its 7 associates accounted for a 25 percent share in deposits and 28.6 percent a year ago.43 percent in the quarter ended March 2001.8 percent per annum during the same period.1 percent as against 3.5 percent of credit during the same period. During the year 2000. money supply (M3) grew by around 16.14 percent and 12.4 percent in FY01 percent was lower than that of 19.7 percent.0 percent as against the previous year’s 6. The net profits of 20 listed banks dropped by 34.56 percent in the fourth quarter of 2000-2001. In FY01 the economic slowdown resulted in a Gross Domestic Product (GDP) growth of only 6. Aggregate Performance of the Banking Industry Aggregate deposits of scheduled commercial banks increased at a compounded annual average growth rate (CAGR) of 17.

it was a feat achieved with its own share of difficulties. The past 2 years in our country was characterized by a mounting intention of the Reserve Bank of India (RBI) to steadily reduce interest rates resulting in a narrowing differential between global and domestic rates. which at present is 9.0 percent. as per RBI guidelines. scheduled commercial banks (SCBs) increased their deposit rates for various maturities by 50-175 basis points. is likely to be hiked to 12. Government initiatives During 2008-09 (as per data up to November 18. India has however remained more or less insulated. Many are also going in for right issues at prices considerably lower than the market prices to woo the investors. Interest Rate Scene The two years. The RBI has been affecting bank rate and CRR cuts at regular intervals to improve liquidity and reduce rates. Any bank that wishes to grow its assets needs to also shore up its capital at the same time so that its capital as a percentage of the risk-weighted assets is maintained at the stipulated rate. post the East Asian crises in 1997-98 saw a climb in the global interest rates. banks have been forced to explore other avenues to shore up their capital base.0 percent by the year 2004 based on the Basle Committee recommendations. Consequently. The CAR. While some are wooing foreign partners to add to the capital others are employing the M& A route. The steady fall in the interest rates resulted in squeezed margins for the banks in general. 2008). The only exception was in July 2000 when the RBI increased the Cash Reserve Ratio (CRR) to stem the fall in the rupee against the dollar. The interest rates range offered by public . the current scenario doesn’t look too attractive for bank majors.On the Capital Adequacy Ratio (CAR) front while most banks managed to fulfill the norms. It was only in the latter half of FY01 that the US Fed cut interest rates. While the IPO route was a much-fancied one in the early ‘90s.

sector banks (PSBs) on deposits of maturity of one year to three years increased to 9. the benchmark prime lending rates (BPLRs) of PSBs increased to 13. 2009. Use of other banks’ ATMs would also not attract any fee except when used for cash withdrawal for which the maximum charge levied was brought down to US$ . For instance. Further.42 per cent and 14.409 per withdrawal by March 31.00-14. 15 banks operating in Orissa including the public sector State Bank of India (SBI) and the Small Industries Development Bank of India (SIDBI) have adopted 48 clusters specially in sectors like engineering tools. the government has announced series of measures to augment flow of credits to around US$ 2. the weighted average BPLR of public sector banks. Bank initiatives Since December 2008. pharmaceuticals. food processing. MV .75 per cent and 10. according to the Union Bank of India Chairman and Managing Director. private sector banks and foreign banks increased to 13.25 per cent in March 2008. cashew processing. To improve the flow of credit to industrial clusters and facilitate their overall development. The number of automated teller machines (ATMs) has risen and the usage of ATMs has gone up substantially during the last few years.00 per cent from 13. Auto loans usually have three components . weaving.274 to SMEs.00-15.73 per cent.00-10. respectively. respectively.50 per cent in March 2008. Prevalent interest rates in the car loan segment now range between 11 per cent and 12.50 per cent in November 2008 from 8.50 per cent and 10. Private sector banks and foreign banks also increased their BPLR to 13. 2008. handloom.99 per cent.50 per cent.5 per cent per annum. bell metals and carpentry etc. during the same period. PSBs are now cashing in the auto loan segment after the exit of private players owing to the slowdown. rice mill.00-17. On the lending side.25-9.25-13.00-17.00-16. two-wheeler loans and commercial vehicle loans. 66. 16.75 per cent by November 2008 from 12. foundry. all cash withdrawals from all ATMs would be free with effect from April loans. PSBs are primarily focusing on car and two-wheeler loans. Accordingly.

The banking industry is thereby now lending both strength and support in form of cash and policies majorly in putting back the economy into track. which provides units to access 20 per cent additional funds over and above their existing overdraft limit. the MSME ministry has proposed to RBI that the sector be given a mandatory 15 per cent share of the total priority sector lending. according to an official.84 million auto loan portfolio. "Banks could accrue revenue of over US$ 5. SIDBI would be lending US$ 1. The government has told public sector banks (PSBs) to extend credit to fundstarved Indian industry.5 per cent) under the condition that the banks will have to lend this credit to the medium and small-scale industry units at an interest rate of 10 per cent before March 31. his bank had recently tied up with Maruti Suzuki India for financing the latter's product and it has a US$ 163. "SME's sector is to grow fastest in the next five years.5 per cent (SIDBI is getting the credit at 5.33 billion out of US$ 1. with 14 per cent growth in terms of revenue and 13 per cent in terms of profits.Nair.73 billion by encouraging the SMEs. According to SBI Chairman. especially exporters and small and medium sector enterprises to address their credit needs." The bank in order to help units tide over the current downturn. ." Bhatt said adding. This is being provided to the PSBs at 6. O P Bhatt. 2010. and this sector also accounts for 50 per cent of the industrial output.47 billion credit from RBI to public sector banks. Already. had introduced products like “SME Care” specially in Jharkhand. contribution of small and medium enterprises (SMEs) is nearly 40-50 per cent to GDP growth of the nation.

0 per cent. Persistent efforts have been made towards adoption of international benchmarks as appropriate to Indian conditions. reflecting the high level of the country’s fiscal deficit and its high degree of monetisation. the Indian banking system operated with a high level of statutory preemptions. the CRR of the Scheduled Commercial Banks (SCBs) is currently placed at 5. The emphasis has been on deregulation and opening up the banking sector to market forces. the developments so far have brought the Indian financial system closer to global standards. The approach to such reforms in India has been one of gradual and non-disruptive progress through a consultative process.Recent Banking Development in India The Indian banking sector has witnessed wide ranging changes under the influence of the financial sector reforms initiated during the early 1990s. Statutory Pre-emptions In the pre-reforms phase. and while the Reserve Bank continues to pursue its medium-term objective of reducing the CRR to the statutory minimum level of 3. 2005-06 to remove the limits on the SLR and CRR are expected to provide freedom to the Reserve Bank in the conduct of monetary policy and also lend further flexibility to the banking system in the deployment of resources.0 per cent of NDTL (net demand and time liabilities). Efforts in the recent period have been focused on lowering both the CRR and SLR. in the form of both the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR). The statutory minimum of 25 per cent for the SLR was reached as early as 1997. The Reserve Bank has been consistently working towards the establishment of an enabling regulatory framework with prompt and Effective supervision as well as the development of technological and institutional infrastructure. While certain changes in the legal infrastructure are yet to be effected. . The legislative changes proposed by the Government in the Union Budget.

With a view to granting operational autonomy to public sector banks. (ii) operating expenses.Interest Rate Structure Deregulation of interest rates has been one of the key features of financial sector reforms. joint-venture banks and insurance companies. public ownership in these banks was reduced by allowing them to raise capital from the equity market of up to 49 per cent of paid-up capital.2 lakh. Interest rates have now been largely deregulated except in the case of: (i) savings deposit accounts. (iii) small loans up to Rs. Recently. a roadmap for the presence of foreign banks in India was released which sets out the process of the gradual opening-up of the banking sector in a transparent manner.25-11. and (iv) export credit.25-11.25 per cent in March 2005 from 10. financial opening and. Competition is being fostered by permitting new private sector banks. These factors differ from bank to bank and feed into the determination of BPLR and spreads of banks. After the interest rate deregulation.50 per cent in March 2004. The process has been gradual and predicated upon the institution of prudential regulation of the banking system. The BPLRs of public sector banks declined to 10. In recent years. above all. Foreign investments in the financial sector in the form 238 BIS Papers No 28 of Foreign . Sequencing of interest rate deregulation has also enabled better price discovery and imparted greater efficiency to the resource allocation process. it has improved the competitiveness of the financial environment and strengthened the transmission mechanism of monetary policy. commercial banks determine their respective BPLRs (benchmark prime lending rates) taking into consideration: (i) actual cost of funds. As advised by the Indian Banks’ Association (a self-regulatory organisation for banks). and more liberal entry of branches of foreign banks. and (iii) a minimum margin to cover regulatory requirements of provisioning and capital charge and profit margin. banks became free to determine their own lending interest rates. (ii) non-resident Indian (NRI) deposits. market behaviour. the underlying macroeconomic conditions.

2007. provisioning and exposure were introduced in 1992 and gradually these norms have been brought up to international standards. income recognition. Transparency and disclosure standards have been enhanced to meet international standards in an ongoing manner. Other initiatives in the area of strengthening prudential norms include measures to strengthen risk management through recognition of different components of risk. including foreign banks operating in India. particularly in metropolitan areas. Some diversification of ownership in select public sector banks has helped further the move towards autonomy and thus provided some response to competitive pressures. norms on connected lending and risk concentration. After adequate skills have been developed. Furthermore. Prudential Regulation Prudential norms related to risk-weighted capital adequacy requirements. They will initially adopt the Standardised Approach for credit risk and the Basic Indicator Approach for operational risk. . banks have been allowed to diversify product portfolio and business activities. The capital requirements are uniformly applied to all banks. application of the mark-to-market principle for investment portfolios and limits on deployment of funds in sensitive activities. by way of prudential guidelines on capital adequacy. Keeping in view the Reserve Bank’s goal to achieve consistency and harmony with international standards and our approach to adopt these standards at a pace appropriate to our context. Commercial banks in India will start implementing Basel II with effect from March 31. Banks have also been advised to formulate and operationalise the Capital Adequacy Assessment Process (CAAP) as required under Pillar II of the New Framework. some banks may be allowed to migrate to the Internal Ratings-Based (IRB) Approach. The share of public sector banks in the banking business is going down. it has been decided to migrate to Basel II. assignment of risk-weights to various asset classes. Banks are required to maintain a minimum CRAR (capital to risk weighted assets ratio) of 9 per cent on an ongoing basis. at both bank and supervisory level.Direct Investment (FDI) as well as portfolio investment have been permitted. accounting.

• Expanding the area of disclosures (Pillar III) so as to achieve greater transparency regarding the financial position and risk profile of banks. the BCBS is currently undertaking the Fifth Quantitative Impact Study (QIS 5). On the basis of recommendations of the Steering Committee. • Introducing Risk-Based Supervision (RBS) in select banks on a pilot basis. The Reserve Bank is currently focusing on the issue of recognition of the external rating agencies for use in the Standardised Approach for credit risk.20 per cent of market share in terms of assets. As a well-established risk management system is a pre-requisite for implementation of advanced approaches under the New Capital Adequacy . In order to assess the impact of Basel II adoption in various jurisdictions and recalibrate the proposals. should aid in fulfilling the Pillar II requirements under Basel II. These banks account for 51. • Encouraging banks to formalise their CAAP in alignment with their business plan and performance budgeting system. private and foreign) with representation from the Indian Banks’ Association and the Reserve Bank has been constituted. draft guidelines on implementation of the New Capital Adequacy Framework have been issued to banks.Some of the other regulatory initiatives relevant to Basel II that have been implemented by the Reserve Bank are: • Ensuring that banks have a suitable risk management framework oriented towards their requirements and dictated by the size and complexity of their business. India will be participating in the study. A Steering Committee comprising senior officials from 14 banks (public. and has selected 11 banks which form a representative sample for this purpose. They have been advised to familiarise themselves with the QIS 5 requirements to enable them to participate in the exercise effectively. risk philosophy. together with the adoption of RBS. With a view to ensuring migration to Basel II in a non-disruptive manner. • Building capacity to ensure the regulator’s ability to identify eligible banks and permit them to adopt IRB/Advanced Measurement approaches. market perceptions and expected level of capital. a consultative and participative approach has been adopted for both designing and implementing the New Framework. This.

Hence. measure. In addition. Basel II provides that banks should be allowed to adopt/migrate to advanced approaches only with the specific approval of the supervisor. along with the related costs involved in building up and maintaining the requisite database. banks can also develop their own systems compatible with type and size of operations as well as risk perception and . after ensuring that they satisfy the minimum requirements specified in the Framework. looking to migrate to the advanced approaches at a later date. is expected to influence the pace of migration to the advanced approaches available under Basel II. Exposure Norms The Reserve Bank has prescribed regulatory limits on banks’ exposure to individual and group borrowers to avoid concentration of credit. therefore. monitor and control risks. The feedback received from banks suggests that a few may be keen on implementing the advanced approaches. not only at the time of adoption/migration. and has advised banks to fix limits on their exposure to specific industries or sectors (real estate) to ensure better risk management. banks are also required to observe certain statutory and regulatory limits in respect of their exposures to capital markets. However. not all are fully equipped to do so straightaway and are. Asset-Liability Management In view of the growing need for banks to be able to identify. In this context. banks desirous of adopting the advanced approaches must perform a stringent assessment of their compliance with the minimum requirements before they shift gears to migrate to these approaches. These guidelines are intended to serve as a benchmark for banks to establish an integrated risk management system. However. but on a continuing basis. banks were required to examine the various options available under the Framework and draw up a roadmap for migration to Basel II. including guidelines on Asset-Liability Management (ALM).Framework. appropriate risk management guidelines have been issued from time to time by the Reserve Bank. current non-availability of acceptable and qualitative historical data relevant to internal credit risk ratings and operational risk losses.

adopting the RiskAdjusted Return on Capital (RAROC) framework of pricing. In respect of market risk. the legal framework has been . Debt Recovery Tribunals. pricing loans on the basis of risk rating. With the enactment of the Credit Information Companies (Regulation) Act. the Lok Adalat (people’s court) forum. and have undertaken studies of behavioural maturity patterns of various components of on-/off-balance sheet items. have also been issued to banks by the Reserve Bank. Detailed guidelines on the management of credit risk. The promulgation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. operational risk. The role of Credit Information Bureau of India Ltd. almost all banks have an Asset-Liability Management Committee. With regard to risk management techniques. Some banks stipulate a quantitative ceiling on aggregate exposures in specified risk categories. analyse rating-wise distribution of borrowers in various industries. Another significant measure has been the setting-up of the 240 BIS Papers No 28 Credit Information Bureau for information sharing on defaulters and other borrowers. They have articulated market risk management policies and procedures.put in place a proper system for covering the existing deficiencies and the requisite upgrading. undertaking a credit risk assessment on a half yearly basis. market risk. sale to securitisation/reconstruction companies and other banks or to non-banking finance companies (NBFCs). NPL Management Banks have been provided with a menu of options for disposal/recovery of NPLs (non-performing loans). filing of suits. The progress made by the banks is monitored on a quarterly basis. etc. 2005. etc. Banks resolve/recover their NPLs through compromise/one time settlement. 2002 and its subsequent amendment have strengthened the position of creditors. banks are at different stages of drawing up a comprehensive credit rating system. etc. Corporate Debt Restructuring (CDR). (CIBIL) in improving the quality of credit analysis by financial institutions and banks need hardly be overemphasised.

among other things. Consolidated supervision of financial conglomerates has since been introduced with bi-annual discussions with the financial conglomerates. RoA) or go above it (net NPAs). financial institutions. coupled with a move towards riskbased supervision.put in place to facilitate the full fledged operationalisation of CIBIL and the introduction of other credit bureaus. The role of statutory auditors has been emphasised with increased internal control through strengthening of the internal audit function. The structured actions in the case of CRAR falling below the trigger point may include. submission and implementation of a capital restoration plan. Three financial indicators. There have also been initiatives aimed at strengthening corporate governance through enhanced due diligence on important shareholders. Consistent with international practice. restriction on expansion of risk weighted assets. Offsite surveillance has been strengthened through control returns. the PCA scheme envisages certain structured/discretionary actions to be taken by the regulator. When the indicators fall below the threshold level (CRAR. restriction on . net non-performing assets (net NPA) and Return on Assets (RoA) have been identified with specific threshold limits. and fit and proper tests for directors. Significant progress has been made in implementation of the Core Principles for Effective Banking Supervision. The supervisory rating system under CAMELS has been established. A scheme of Prompt Corrective Action (PCA) is in place for attending to banks showing steady deterioration in financial health. urban banks and NBFCs. the Board’s focus is on offsite and on-site inspections and on banks’ internal control systems. capital to risk-weighted assets ratio (CRAR). Board for Financial Supervision (BFS) An independent Board for Financial Supervision (BFS) under the aegis of the Reserve Bank has been established as the apex supervisory authority for commercial banks. viz.

entering into new lines of business, reducing/skipping dividend payments, and requirement for recapitalisation. The structured actions in the case of RoA falling below the trigger level may include, among other things, restriction on accessing/renewing costly deposits and CDs, a requirement to take steps to increase fee-based income and to contain administrative expenses, not to enter new lines of business, imposition of restrictions on borrowings from the interbank market, etc. In the case of increasing net NPAs, structured actions will include, among other things, undertaking a special drive to reduce the stock of NPAs and containing the generation of fresh NPAs, reviewing the loan policy of the bank, taking steps to upgrade credit appraisal skills and systems and to strengthen follow-up of advances, including a loan review mechanism for large loans, following up suit filed/ decreed debts effectively, putting in place proper credit risk management policies/processes/procedures/prudential limits, reducing loan concentration, etc. Discretionary action may include restrictions on capital expenditure, expansion in staff, and increase of stake in subsidiaries. The Reserve Bank/Government may take steps to change promoters/ ownership and may even take steps to merge/amalgamate/liquidate the bank or impose a moratorium on it if its position does not improve within an agreed period. Technological Infrastructure In recent years, the Reserve Bank has endeavoured to improve the efficiency of the financial system by ensuring the presence of a safe, secure and effective payment and settlement system. In the process, apart from performing regulatory and oversight functions the Reserve Bank has also played an important role in promoting the system’s functionality and modernisation on an ongoing basis. The consolidation of the existing payment systems revolves around strengthening computerised cheque clearing, and expanding the reach of Electronic Clearing Services (ECS) and Electronic Funds. Transfer (EFT). The critical elements of the developmental strategy are the opening of new clearing houses, interconnection of clearing houses through the Indian Financial Network (INFINET) and the development of a Real-Time Gross Settlement (RTGS) System, a Centralised Funds Management System (CFMS), a

Negotiated Dealing System (NDS) and the Structured Financial Messaging System (SFMS). Similarly, integration of the various payment products with the systems of individual banks has been another thrust area. An Assessment These reform measures have had a major impact on the overall efficiency and stability of the banking system in India. The dependence of the Indian banking system on volatile liabilities to finance its assets is quite limited, with the funding volatility ratio at -0.17 per cent as compared with a global range of -0.17 to 0.11 per cent. The overall capital adequacy ratio of banks at end-March 2005 was 12.8 per cent as against the regulatory requirement of 9 per cent which itself is higher than the Basel norm of 8 per cent. The capital adequacy ratio was broadly comparable with the global range. There has been a marked improvement in asset quality with the percentage of gross NPAs to gross advances for the banking system declining from 14.4 per cent in 1998 to 5.2 per cent in 2005. Globally, the NPL ratio varies widely from a low of 0.3 per cent to 3.0 per cent in developed economies, to over 10.0 per cent in several Latin American economies. The reform measures have also resulted in an improvement in the profitability of banks. RoA rose from 0.4 per cent in the year 1991-92 to 0.9 per cent in 2004-05. Considering that, globally, RoA was in the range -1.2 to 6.2 per cent for 2004, Indian banks are well placed. The banking sector reforms have also emphasised the need to review manpower resources and rationalise requirements by drawing up a realistic plan so as to reduce operating cost and improve profitability. The cost to income ratio of 0.5 per cent for Indian banks compares favourably with the global range of 0.46 per cent to 0.68 per cent and vis-a-vis 0.48 per cent to 1.16 per cent for the world’s largest banks. In recent years, the Indian economy has been undergoing a phase of high growth coupled with internal and external stability characterised by price stability, fiscal consolidation, overall balance of payments alignment, improvement in the performance of financial institutions and stable financial market conditions and the service sector taking an increasing share, enhanced competitiveness, increased emphasis on infrastructure, improved market microstructure, an enabling legislative environment and significant capital

inflows. This has provided the backdrop for a more sustained development of financial markets and reform.

CHAPTER 3 INTRODUCTION TO CREDIT CARD INDUSTRY History Our society was once upon a time functioning without money; it is again likely to become moneyless. While ancient society was confronted with the problems of adjusting mutually satisfactory rates and basis of exchange, future society, with the help of computers, electronics and telecommunications, credit cards, telephone and other modern means of communications, would settle financial transactions instantly. Money as a medium of exchange will serve its function. The difference will be that in future coins, currency notes, cheques, etc., will be dispensed with in favour of records. India has entered the stage of credit card system and credit cards are gaining increasing relevance to facilitate industrial, commercial and agricultural transactions. Credit was first used in Assyria, Babylon and Egypt 3,000 years ago. The Bill of Exchange – the forerunner of bank notes - was established in the 14th century. Debts settled by one-third cash and two-thirds bill of exchange paper money followed only in the 17th century. The first advertisement for credit was placed in 1730 by Christopher Thornton who offered furniture that could be paid off weekly. From the 18th century until the early part of the 20th, tallymen sold clothes in return for small weekly payments; they were called “tallymen” because they kept a record of tally of what people had brought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. In

or had developed alternative forms of cash-less payments. it was followed shortly thereafter by American Express and Carte Blanche. store cards and so on. corporate-user credit cards. Western Union had begun issuing charge cards to its frequent customers in 1914. in the United States. the take-up of credit cards was initially much slower. The concept of paying merchants using a card was invented in 1950 by Ralph Schneider and Frank X. specifically to sell fuel to a growing number of automobile owners. Canada or UK. Bank of America created the BankAmericard in 1958. among many others). In many countries acceptance still remains poor as the use of a credit card system depends on the banking system being perceived as reliable.the 1920s shopper’s plate – “buy now. There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions). It was first used in the 1920s. The fractured nature of the US banking system meant that credit cards became an effective way for those who were travelling around the country to move their credit to places where they could not directly use their banking facilities. including organization-branded credit cards. It took until the 1990s to reach anything like the percentage market-penetration levels achieved in the US. Canada and the UK. . Switzerland. produced the first "general purpose" charge card. which is similar but required the entire bill to be paid with each statement. although having reached very high adoption levels in the US. or the EC-card (Germany. It could only be used in shops which issued it. McNamara in order to consolidate multiple cards. In these places. it is important to note that many cultures were much more cash-oriented in the latter half of the twentieth century. In contrast. which was created partially through a merger with Dine and Sign. pay later” system – was introduced in USA. In 1966 Barclaycard in the UK launched the first credit card outside of the US. The Diners Club. In 1938 several companies started to accept each other's cards. The credit card was the successor of a variety of merchant credit schemes. France. like Carte bleue. a product which eventually evolved into the Visa system ("Chargex" also became Visa). MasterCard came to being in 1966 when a group of credit-issuing banks established Master Charge.

Consumer Credit Act 1974 of the UK which defines a credit-token as a card. Cash in the form of currency notes and coins makes up just one form of the payment system. and this is where plastic cards have proved their worth. some countries. the third party supplies cash. stamp. . for example) leading to higher card usage. France in particular. voucher. Definition of credit card A credit card is a credit-token within the meaning of section 14(1). he will supply. cash. goods and services (whether or not deducting any discount or commission). coupon. Development in banking while also giving inputs to the further development of cash brought about a second phase in payment namely paper instructions such as cheques and credit transfers. It allows the card issuers to limit the sum of money the card-holders wish to spend. This has led to the rise of Co-Brand and Affinity cards . The design of the credit card itself has become a major selling point in recent years. form booklet or other document or thing given to an individual by a person carrying on a consumer credit business. Concept of credit card Progress in civilization in its turn has brought out radical changes in the manner of trading. The need for something intrinsically useful and easily applicable in everyday dealing is clearly felt.that on the production of it (whether or not some other action is also required). cheque. The requirement for greater flexibility and convenience has led to electronic payments. in return for payment to him by the individual. goods and services (or any of them) on credit. The value of the card to the issuer being related to the Customer's usage of the card.where the cards design is related to the "affinity" (a university. on the production of it to third party (whether or not any other action is also required). who undertakes:. The spending of card-holders who have defaulted on payments or who are over their credit limit can be restricted until the balances are cleared. In most cases a percentage of the value of the card is returned to the affinity group.In contrast. were much faster to develop and adopt chip-based credit cards which are now seen as major anti-fraud credit devices. because of the legislative framework surrounding banking system overdrafts. or that were.

the consumer must open an account with a bank or company. Bank America and Master charge card became the focal points for the eventual groupings of all bank cards throughout the world. the Franklin National Bank in New York issued the first modern credit card. When a purchase was made. This is turn helps earn income by way of commission from its merchant establishments. the merchant was required to call the bank for approval. To qualify for this type of credit. A credit card allows consumers to purchase products or services without cash and to pay for them at a later date. In 1951. the scheme provided large scope for sale and increased turnover with assured and prompt payment. They then receive a line of . which sponsors a card. Merchants signed agreements to accept the cards. Such credit is normally made available for a period of 30 to 45 days. If a purchase exceeded the merchant’s floor limit. These two independent card companies led to latest innovations in the credit card business. Now the credit card system has become universally popular throughout the world including the Communist countries. The total number of credit card users in India is currently in excess of 80 lakh and now more than 30 banks are chasing customers with their cards. These two international cards are very popular and are accepted and honored all over the world in 170 countries. the card-holder presented the card to the merchant. the banks comprising the Western State Bank Card Association issued the Master Charge Card.In very simple words credit card can be termed as an unsecured personal loan offered to customers by the banks where the card-holder could purchase goods and services from authorized merchant or merchant establishments (MEs) of the bank up to a fixed limit on credit. Unsolicited credit cards were sent to prospective card-holders who were not subject to credit screening prior to being sent a card. At the end of 1995 and 1980 a million cards were used in the world. who would copy the information on the merchant’s account at Franklin Bank in the amount of the transactions. less the discount rate. The Bank of America issued Bank Americard in 1958 and eight years later. in 1966. The VISA and the MASTER the largest credit cards today appeared in market in 1966. Franklin National Bank’s Credit Card programme was copied by hundreds of other banks in the late 1950s and early 1960s.

credit cards may be sponsored by large retailers (such as major clothing or department stores) or by banks or corporations (like VISA or American Express). the Bank of America began to license banks in the United States the rights to issue its special BankAmericards. the customer may pay interest charges on the amount that they do not pay for on a monthly basis. In with a specified dollar amount. Also. the sponsors make money by charging merchants a small percentage of income for the service of the card. The merchant makes arrangements to participate in a credit card program with a merchant bank. This arrangement is acceptable to the merchants because they can let their customers pay by credit card instead of requiring cash. sponsors may generate income by leasing credit card verification equipment to merchants (especially if the merchants cannot afford to purchase the equipment themselves. can be substantial considering that the larger companies have tens of millions of customers. Primarily they make money from the interest payments charged on the unpaid balance. Depending on the terms of the card. The VISA Company. The amount varies depending on the volume and type of business.) Finally. Every month the sponsor provides a bill. traces its history back to 1958 when the Bank of America began its BankAmerica program. In 1977 the name Visa was adopted internationally to cover all these cards. For companies like American Express which sponsor cards. which in turn works with a card-issuing bank. which is typically only $50 or $75 per customer per year. In the mid-1960s. The banks and companies that sponsor credit cards profit in three ways. but they also can make money by charging an annual fee for the use of the card. sponsors may profit by charging service fees for late payments . the processing fee may be significantly higher. The merchant bank determines what percentage of the total purchase value has to be paid by the merchant to the card-issuing bank. VISA became the first credit card to be recognized worldwide. but in general it is between 1-2%. The income from this fee. Furthermore. A percentage of that amount is kept by the merchant bank as a transaction-processing fee. which tallies the card activity during the previous 30 days. for example. They can use the card to make purchases from participating merchants until they reach this credit limit. Credits cards are a relatively recent development.


Consumers collect a percentage-based commission in the form of reward points for card usage at shops/establishments. Credit cards arrived in India about two decades ago. In the early stages its growth was very slow in terms of number and value. All you are required to do is give your credit card at the payment counter. The number of nationalized and private banks issuing credit cards has increased significantly. Transactions using plastic money involve the payment of a small fee to the issuing bank in the form of an application/joining fee and an annual fee. Citibank and Standard Chartered Bank dominated the market. but even residents of smaller cities and towns have taken to them. The usage of credit card is very simple and easy. However. almost a decade to begin dealing in credit cards. The consumers do not have to carry cash and can use the card to pay their shopping/restaurant bills. This is evident from the fact that it took State Bank of India (SBI). Even the number of players was limited and mainly foreign banks like HSBC. has aggressively started promoting credit cards only three years ago. India’s largest bank. despite its widespread reach. in the recent past the scenario has changed dramatically. Indian banks did not show much interest in the product in the initial stages.CREDIT CARDS IN INDIA Credit card or the plastic money. This can be attributed to the aggressive strategy of nationalized and private banks to promote card products in smaller town and cities. These banks have far wider reach and depth in smaller cities and town as compared to foreign banks. Credit cards are now not only integral parts of the consumer’s life in metros. Prevalence of small value transaction. the person handling the counter swipes the card into the system to check the details of the card and . was slow to enter the Indian market because of the high sentimental value that Indian consumers attach to hard cash. as it is popularly referred to. credit shy culture and inadequate banking habits of the population were other hindrances. They have capitalized on this advantage to play a major role in expanding the credit card base in terms of number and usage in smaller cities and town. SBI.

while Hongkong Bank has 0. According to a study conducted by State Bank of India. HSBC and State Bank of India (SBI). There is no doubt that credit cards are very convenient.22 million. varying across banks. Currently. the market has virtually grown to over 3.67 million.000 . Between 1987 and 2000. The payment is done electronically. Among the nationalized banks. but everyone isn’t eligible for a credit need to sign on the bill. followed by Bank of Baroda at 0. In fact.150. There are certain requirements. which started out in 1981. salary slips if applicable. .Citibank. plastic currency has almost wiped off hard currency from the US. In addition to income eligibility. Isn’t it very simple? Yes it is. This requirement helps the issuing bank to assess whether or not you will be able to repay the expenses incurred through your credit card. especially in case of daily expenses. as they are known) require the applicant to have a minimum income level before he can apply for the card. resulting in far less expenditure associated with cash transactions.3 million credit card customers. which is catering to over 3. is expected to double by the fiscal 2003.28 million cards. Standard Chartered Bank. In addition you earn bonus points while you spend via the card. The minimum income level varies from bank to bank and fluctuates between Rs 60. Typically credit card companies (or issuing banks. With only a signature your payment is taken care of.5 million cards so far. to get a credit card. is on the verge of an unprecedented boom. you need to be at least 21 years of age (maximum 65 years). Standard Chartered Bank follows way behind with 0. balance sheet and profit and loss account detail if you are self-employed. Proof of income is given by way of documents. having issued 1. It is because of these reasons that in the recent past card usage has increased dramatically. SBI tops the list with 0.000 per annum depending upon your risk profile and the type of card. These documents could be a copy of tax return filed.8 million cards with almost 25-30 per cent growth in new card-holders. The industry. Citibank is the dominant player.8 million1 card users. The credit card market in India. four major bishops are ruling the card empire . These serve as the starting point while applying for a card.

Nearly 45-50 per cent of the card-holders are estimated to be inactive. have more than one) and the numbers are growing very strongly. While Indians swiped .” says Roopan Asthana. obviously. Credit cards spend as a proportion of the total expenditure by Indians is one of the lowest in the world. “The annual growth rate is good. A credit card holder does not necessarily have to settle his entire account at the end of the month for he has the option to make partial payment in subsequent months. Indians are still not sure of the plastic money. The figure was put at 75. the number of merchant establishments which accept cards is growing selectively sluggish. and now stands at 100.the transmission of payments and the granting of credit. there are 2. when the card-holder makes the full payment at the end of the month he is said to be using his credit card as a ‘charge card’. while another 30 per cent use the card as a charge card without using the revolving facility cards are expected to account for 33 per cent of all purchases by 2000 and 43 per cent by 2005. a ‘credit’ card must offer the opinion of revolving credit. manager.3 million cards (some. the interest paid by the card-holder on the ‘credit’ utilized by him is what makes the business of credit cards profitable from the point of view of the bank issuing the card. credit cards in India have made business sense only to a few. in its true sense.000 a couple of years ago. but it is only 20 per cent of the card base. The credit card embodies two essential aspects of the basic banking function .000 on both the Visa and MasterCard loops. Still.000–80.India is generating more credit card spenders than spending places. As opposed to that. The seven million Indian credit card industry has been growing over 25 per cent3 annually and has now more than 30 banks chasing customers with their cards. that is generating revenue. Therefore. This is very akin to the overdraft facility offered by banks to their account holders. While card-base and appends are growing at a spiffy 25-30 per cent2 annually. Incidentally. In fact.5 million card-holders and 3. Card Products Division of HSBC.

What is drawing a large number of companies and financial institutions including Life Insurance Corporation of India (LIC) to India is the 61% year-on-year growth being witnessed in retail spending. Manila. The high growth in spending is attracting a lot of entrants into the segment. has a history of defaults on credit cards where the government had to bail out the credit card companies. AIG. only 28% of the affluent have credit card. Jakarta. however. in India. Taipei . the highest in the world. The world average hovers around 9%. Punjab National Bank (PNB) is also learnt to be in negotiations to launch another credit card. according to Visa research in Asia. . Hong Kong have 48-76% of the affluent population owning credit cards. Korea. Indians spend just 1% of their total purchases through credit cards while the Koreans make one-fifth of their total purchases through credit cards. Interestingly. credit card ownership in India is the lowest in the world. Sources in the industry say with such low penetration levels there are at least half a dozen companies that are looking to roll out credit card operations in India. Barclays. Seoul has 84% of its affluent population owning a credit card.plastic money worth $6 billion in 2006. “The very low levels of penetration in India offer immense potential for credit card companies. While 90% of the affluent in Hong Kong have credit cards and the corresponding figure for Sydney stands at 87%. and LIC are some of the companies eager to enter the Indian market. even among the rich. Also. there are fewer credit card companies than those in other parts of the world. credit card users in Korea cumulatively spent $136 billion.

In March 2005. Each bank / NBFC must have a well documented policy and a Fair Practices Code for credit card operations. may be issued with the clear understanding that the liability will be that of the principal cardholder. Banks / NBFCs should independently assess the credit risk while issuing cards to persons. secure and efficient manner as well as to ensure that the rules. All the credit card issuing banks / NBFCs should implement these guidelines immediately. The Group has suggested various regulatory measures aimed at encouraging growth of credit cards in a safe. those that are subsidiary to the principal card. The following guidelines on credit card operations of banks have been framed based on the recommendations of the Group as also the feedback received from the members of the public. The bank / NBFC's Fair Practice Code should. Guidelines for Implementation Issue of cards a. at the latest by November 30. especially to students and others with no independent financial means. regulations.e. 2005. b. the IBA released a Fair Practices Code for credit card operations which could be adopted by banks / NBFCs. As holding several credit cards enhances the total credit available to any consumer. at a minimum. the Reserve Bank of India had constituted a Working Group on Regulatory Mechanism for Cards.Credit Card Operations of banks. standards and practices of the card issuing banks are in alignment with the best customer practices. card issuing banks and others. incorporate the relevant guidelines contained in this circular. banks / NBFCs should assess the credit limit for a credit card customer having regard to . Add-on cards i. Banks / NBFCs should widely disseminate the contents thereof including through their websites.Guidelines Dated 21st Nov 2005 Pursuant to the announcement made in the Annual Policy Statement 2004-05.

Card issuers should ensure that there is no delay in dispatching bills and the customer has sufficient number of days (at least one fortnight) for making payment before the interest starts getting charged. the terms and conditions for issue and usage of a credit card should be mentioned in clear and simple language (preferably in English. The late payment charges. Hindi and the local language) comprehensible to a card user. as given in the Appendix. Even where the minimum amount indicated to keep the card valid has been paid. during marketing. While issuing cards. The card issuing banks / NBFCs would be solely responsible for fulfilment of all KYC requirements. d. at the acceptance stage (welcome kit) and in important subsequent communications. it should be indicated in bold letters that the interest will be charged on the amount due after the due date of payment. should be prominently indicated. . These aspects may be shown in the Welcome Kit in addition to being shown in the monthly statement. Interest rates and other charges a. at the time of application. if different).e. The APR charged and the annual fee should be shown with equal prominence. even where DSAs / DMAs or other agents solicit business on their behalf. Card issuers should quote annualized percentage rates (APR) on card products (separately for retail purchase and for cash advance.the limits enjoyed by the cardholder from other banks on the basis of self declaration/ credit information. including the method of calculation of such charges and the number of days. b. The manner in which the outstanding unpaid amount will be included for calculation of interest should also be specifically shown with prominence in all monthly statements. should be highlighted and advertised/ sent separately to the prospective customer/ customers at all the stages i. c. The method of calculation of APR should be given with a couple of examples for better comprehension. The Most Important Terms and Conditions (MITCs) termed as standard set of conditions.

The bank / NBFC should not levy any charge that was not explicitly indicated to the credit card holder at the time of issue of the card and getting his / her consent. should be stipulated so as to ensure that there is no negative amortization. if necessary. liquidity and operational risks. which may subsequently be levied by the Government or any other statutory authority. the bank / NBFCs have to be guided by the need to ensure confidentiality of the customer’s records. . b. When banks / NBFCs outsource the various credit card operations. etc. the bank / NBFC should provide explanation and. documentary evidence to the customer within a maximum period of sixty days with a spirit to amicably redress the grievances. and adhere to fair practices in debt collection. Use of DSAs / DMAs and other agents a. In the choice of the service provider. The card issuing bank / NBFC should ensure that wrong bills are not raised and issued to customers. he may be permitted to do so without the bank levying any extra charge for such closure. respect customer privacy. this would not be applicable to charges like service taxes. To obviate frequent complaints of delayed billing. Changes in charges (other than interest) may be made only with prospective effect giving notice of at least one month. d. In case. Wrongful billing a. the credit card issuing bank / NBFC may consider providing bills and statements of accounts online. If a credit card holder desires to surrender his credit card on account of any change in credit card charges to his disadvantage. a customer protests any bill. The terms and conditions for payment of credit card dues. with suitable security built therefore. they have to be extremely careful that the appointments of such service providers do not compromise with the quality of the customer service and the bank / NBFC’s ability to manage credit. e.c. including the minimum payment due. However.

The name. a time limit of sixty (60) days may be given to the customers for preferring their complaints grievances. conveying the correct terms and conditions of the product on offer. designation. Generally. There should be a system of acknowledging customers' complaints for follow up. b. particularly in the aspects included in these guidelines like soliciting customers. hours for calling. privacy of customer information. Redressal of Grievances a.b. The designated officer should ensure that genuine grievances of credit card subscribers are redressed promptly without involving delay. even if the complaints are received on phone. The name and contact number of designated grievance redressal officer of the bank / NBFC should be mentioned on the credit card bills. c. The bank / NBFC should ensure that the DSAs engaged by them for marketing their credit card products scrupulously adhere to the bank / NBFC’s own Code of Conduct for credit card operations which should be displayed on the bank / NBFC’s website and be available easily to any credit card holder. c. etc. . The card issuing bank / NBFC should constitute Grievance Redressal machinery within the bank / NBFC and give wide publicity about it through electronic and print media. The grievance redressal procedure of the bank / NBFC and the time frame fixed for responding to the complaints should be placed on the bank / NBFC's website. such as complaint number / docket number. The Code of Conduct for Direct Sales Agents (DSAs) formulated by the Indian Banks’ Association (IBA) could be used by banks / NBFCs in formulating their own codes for the purpose. address and contact number of important executives as well as the Grievance Redressal Officer of the bank / NBFC may be displayed on the website. The bank / NBFC should have a system of random checks and mystery shopping to ensure that their agents have been properly briefed and trained in order to handle with care and caution their responsibilities.

d. If a complainant does not get satisfactory response from the bank / NBFC within a maximum period of thirty (30) days from the date of his lodging the complaint, he will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s. The bank / NBFC shall be liable to compensate the complainant for the loss of his time, expenses, financial loss as well as for the harassment and mental anguish suffered by him for the fault of the bank and where the grievance has not been redressed in time.

Internal control and monitoring systems With a view to ensuring that the quality of customer service is ensured on an on-going basis in banks / NBFCs, the Standing Committee on Customer Service in each bank / NBFC may review on a monthly basis the credit card operations including reports of defaulters to the CIBIL, credit card related complaints and take measures to improve the services and ensure the orderly growth in the credit card operations. Banks / NBFCs should put up detailed quarterly analysis of credit card related complaints to their Top Management. Card issuing banks should have in place a suitable monitoring mechanism to randomly check the genuineness of merchant transactions. Right to impose penalty The Reserve Bank of India reserves the right to impose any penalty on a bank / NBFC under the provisions of the Banking Regulation Act, 1949 for violation of any of these guidelines. How credit cards work

An example of the front of a typical credit card: 1. Issuing bank logo

2. 3. 4.

EMV chip Hologram Card number Card brand logo Expiry Date Cardholder's name

5. 6. 7.

An example of the reverse side of a typical credit card:
1. Magnetic Stripe

2. Signature Strip
3. Card Security Code

A user is issued credit after an account has been approved by the credit provider, and is given a credit card, with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit. Often a general bank issues the credit, but sometimes a captive bank created to issue a particular brand of credit card, such as Chase, Wells Fargo or Bank of America issues the credit. When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates their consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a Card not present (CNP) transaction. Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by ecommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder. Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts. Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid. For example, if a user had a $1,000 outstanding balance and pays it in full, there would be no interest charged. If, however, even $1.00 of the total balance remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made that the user of

when the balance stopped revolving). Interest rates can vary considerably from card to card. and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances.i. or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their program. possibly with a single umbrella credit limit.. or to encourage more spending on the part of the customer. Because of intense competition in the credit card industry. Grace periods vary. or with separate credit limits applicable to the various balance segments. but usually range from 20 to 30 . Low interest credit cards or even 0% interest credit cards are available. Usually this compartmentalization is the result of special incentive offers from the issuing bank. The credit card may simply serve as a form of revolving credit. which can be considerable if there is a large outstanding balance (see external links for some on-line services. payment allocation is generally at the discretion of the issuing bank. Most such services charge a monthly or annual fee. Grace period A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. services are available which alert credit card holders when their low interest period is due to expire. gift certificates. and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument. services have been set up allowing users to calculate savings available by switching cards.the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid. However. As the rates and terms vary. or it may become a complicated financial instrument with multiple balance segments each at a different interest rate. usually between 6 and 12 months after which a higher rate is charged.e. In the event that several interest rates apply to various balance segments. credit providers often offer incentives such as frequent flier points. The only downside to consumers is that the period of low interest credit cards is limited to a fixed term.. or even if the issuing bank decides to raise its revenue. either to encourage balance transfers from cards of other issuers.

such as checks. The merchant's side An example of street markets accepting credit cards For merchants.e. the bank charges a commission (discount fee). finance charges will be calculated and the grace period does not apply. excluding new transactions. In most cases.days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met. In some countries. like the Nordic countries. a merchant may be penalized or have their ability to receive payment using that credit card restricted if there are too many cancellations or reversals of charges as a result of disputes. The commission is often a percentage of the transaction amount. plus a fixed fee. banks guarantee payment on stolen cards only if an ID card is checked and the ID card number/civic registration number is written . which are discussed below. For each purchase. regardless of whether the consumer defaults on their credit card payment (except for legitimate disputes. though this is not always allowed by the credit card consortium. to the merchant for this service and there may be a certain delay before the agreed payment is received by the merchant. cards are even more secure than cash. because they discourage theft by the merchant's employees. Some small merchants require credit purchases to have a minimum amount (usually between $5 and $10) to compensate for the transaction costs. a credit card transaction is often more secure than other forms of payment. with most credit cards there is no grace period if there's any outstanding balance from the previous billing cycle or statement (i. because the issuing bank commits to pay the merchant the moment the transaction is authorized. However. Finance charge(s) incurred depends on the grace period and balance. and can result in charge backs to the merchant). if a customer is late paying the balance. Usually. interest is applied on both the previous balance and new transactions). there are some credit cards that will only apply finance charge on the previous or old balance. In addition.

but as of 2007. Some shops use the card's PIN code for identification. • Credit Card association: An association of card-issuing banks such as Visa. and acquiring banks. that set transaction terms for merchants. will instead have to show their passport. sometimes together with other information. American Express. etc. . Card-issuing bank: The financial institution or other organization that issued the • credit card to the cardholder. card-issuing banks. but in general is the organization that the merchant deals with. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. and the passport number will be written down on the receipt. this is no longer the case.down on the receipt together with the signature. In these countries merchants therefore usually ask for ID. Discover. and in that case showing an ID card is not necessary. Parties involved • Cardholder: The owner of the card used to make a purchase. who are unlikely to possess a Nordic ID card or driving license. MasterCard. • Merchant account provider: This could refer to the acquiring bank or the independent sales organization. the consumer. • Independent sales organization: Resellers (to merchants) of the services of the acquiring bank. • Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder • Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant. American Express and Discover were previously the only card-issuing banks for their respective brands. Non-Nordic citizens.

he or she will be given credit in the range of $500–$1000. the issuer returns the transaction to the acquirer for resolution. Concord EFSnet. the deposit required may be significantly less than the required credit limit. but should he or she default on a payment. In these cases. universities and charities. May be operated by an independent company. In some cases. Vital. and get paid a fee or a percentage of the balance for each card issued using their name. Credit card issuers offer this as they have noticed that delinquencies were notably reduced when the customer perceives he has something to lose if he doesn't repay his balance. Typically. who must either accept the chargeback or contest it. credit card issuers will offer incentives even on their secured card portfolios. and it consists of a few steps. Paymentech. Examples of typical affinity partners are sports teams. The flow of information and money between these parties — always through the card associations — is known as the interchange. Secured credit cards A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Omaha. The cardholder of a secured credit card is still expected to make regular payments. The advantage of the secured card for an individual with negative or . Nova.• Transaction network: The system that implements the mechanics of the electronic transactions. and VisaNet. and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account. Nabanco. • Affinity partner: Some institutions lend their name to an issuer to attract customers that have a strong relationship with that institution. Transaction steps Authorization: In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction). the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. as he or she would with a regular credit card. The acquirer then forwards the chargeback to the merchant. NDC Atlanta. Thus if the cardholder puts down $1000. and one company may operate multiple networks. the cardholder must deposit between 100% and 200% of the total amount of credit desired. Transaction processing networks include: Cardnet.

however. Secured credit cards are available with both Visa and MasterCard logos on them. As more consumers require a suitable solution to rebuilding credit. such as a parent or employer. In these cases the total debt may far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt. However. it carries a credit-card brand (Visa or MasterCard) and can be used in similar ways. Usually the deposit is only used as an offset when the account is closed. They are often offered as a means of rebuilding one's credit history is that most companies report regularly to the major credit bureaus. This means that an account which is less than 150 days delinquent will continue to accrue interest and fees. Although the deposit is in the hands of the credit card issuer as security in the event of default by the consumer. for people in certain situations. after charging off on other credit cards. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards. This allows for rebuilding of positive credit history. Sometimes a credit card will be secured by the equity in the borrower's home. recent changes have allowed some credit card . Most of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened. Prepaid credit cards A prepaid credit card is not really a credit card. even including the security deposit. secured cards can often be less expensive in total cost than unsecured credit cards. (for example. Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. the deposit will not be debited simply for missing one or two payments. as no credit is offered by the card issuer: the card-holder spends money which has been "stored" via a prior deposit by the cardholder or someone else. and could result in a balance which is much higher than the actual credit limit on the card. or people with a long history of delinquency on various forms of debt). This is called a home equity line of credit (HELOC). either at the request of the customer or due to severe delinquency (150 to 180 days).

. and other perks (such as rewards schemes in which points earned by purchasing goods with the card can be redeemed for further goods and services or credit card cashback). and are available with a large variety of credit limits. With prepaid credit cards you are not charged any interest but you are often charged monthly fees after an arbitrary time period. Also most secured credit cards still charge you interest even though you are not actually "borrowing" any money. Many other fees also usually apply to a prepaid card. "Pre-paid cards". The main advantage over secured credit cards is that you are not required to come up with $500 or more to open an account. limit the amount for which a consumer can be held liable due to fraudulent transactions as a result of a consumer's credit card being lost or stolen. the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money". Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards. which is necessary for both monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. which explains the advantages and disadvantages of this type of prepaid card. accessible credit. They are hard to find and have higher APR fees and higher interest costs. credit cards offer consumers an easy way to track expenses. Features As well as convenient. the cardholder loads it with any amount of money and then uses the card to spend the money. Prepaid cards can be issued to minors since there is no credit line involved. The agency publishes a booklet. repayment arrangement. Credit cards are accepted worldwide. such as the United States.companies to offer pre-paid credit cards to help rebuild credit. and France. the United Kingdom. After purchasing the card. Some countries. Prepaid credit cards are often marketed to teenagers for shopping online without having their parents complete the transaction.


such that the total cost of both fraud and fraud prevention is minimized. Most internet fraud is done through the use of stolen credit card information which is obtained in many ways. a website that uses SSL to encrypt card numbers from a client may simply email the number from the web server to someone who manually processes the card details at a card terminal. the simplest being copying information from retailers. a security risk is created. The 3 by 5 mm security chip embedded in the card is shown enlarged in the inset. either online or offline. systems with security holes are usually the result of poor implementations of card acquisition by merchants. many banks offer systems such as Clear Commerce. For example. combining credit card and debit card properties. The low security of the credit card system presents countless opportunities for fraud.Security A smart card. Despite efforts to improve security for remote purchases using credit cards. However. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction. Naturally. anywhere card details become human-readable before being processed at the acquiring bank. which are generally used quickly before the cards are reported stolen. . but to "reduce it to manageable levels". This opportunity has created a huge black market in stolen credit card numbers. The goal of the credit card companies is not to eliminate fraud. The gold contact pads on the card enable electronic access to the chip. where encrypted card details captured on a merchant's web server can be sent directly to the payment processor.

for 1. Second. The majority of smartcard (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. valid for a relatively short time. in the case of credit cards. federal officials only prosecute cases exceeding US $5000 in value. See CVV2 for more information. generated as needed. the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. for use in "card not present" transactions. such high returns go hand in hand with risk. and thus dependent on borrowers not to default in large numbers. since the business is essentially one of making unsecured (uncollateralized) loans. 7 or even 10 years after the debt is repaid. First. with a very low limit. and typically only valid with a single merchant. The way credit card owners pay off their balances has a tremendous effect on their credit history. but they do not have the resources to pursue all criminals. Third. 5. depending on the jurisdiction and the situation. The credit information stays on the credit report. credit card portfolios have been very profitable for banks. However. Three improvements to card security have been introduced to the more common credit card networks but none has proven to help reduce credit card fraud so far. The Federal Bureau of Investigation and U. 2. the on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder. In general. All the information is collected by credit bureaus. Postal Inspection Service are responsible for prosecuting criminals who engage in credit card fraud in the United States.Controlled Payment Numbers are another option for protecting one's credit card number: they are "alias" numbers linked to one's actual card number. largely due to the booming economy of the late nineties.S. an additional 3 or 4 digit code is now present on the back of most cards. . Profits and losses In recent times.

to taking the many phone calls which cardholders place to their issuer. to protecting the customers from fraud rings. If the card issuer charges 15% on money lent to users. and it costs 5% to borrow the money to lend. Charge offs When a consumer becomes severely delinquent on a debt (often at the point of six months without payment). As they receive very low-interest loans from other firms. for instance. an outside collection agency. A charge-off is considered to be "written off as uncollectable. bad debts and even fraud are simply part of the cost of doing business. This 5% difference is the "interest expense" and the 10% is the "net interest margin". If the amount is large (generally over $1500 . there is the possibility of a lawsuit or arbitration. to mailing the statements. or more likely. and the amount of the bad debt. the debt is still legally valid. Depending on the issuer. including everything from paying the executives who run the company to printing the plastics." To banks. and the balance sits with the cardholder for a year. Operating costs This is the cost of running the credit card portfolio. they may borrow as much as their customers require. while lending their capital to other borrowers at higher rates. to running the computers that keep track of every cardholder's balance.$2000). However. This includes contacts from internal collections staff. the creditor may declare the debt to be a charge-off. The item will include relevant dates.) It is one of the worst possible items to have on your file.Costs Credit card issuers (banks) have several types of costs: Interest expenses Banks generally borrow the money they then lend to their customers. marketing programs are also a significant portion of expenses. . and the creditor can attempt to collect the full amount. It will then be listed as such on the debtor's credit bureau reports (Equifax. lists "R9" in the "status" column to denote a charge-off. the issuer earns 10% on the loan.

In the US. or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card. Networks like Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. most rewards points are accrued as a liability on a company's balance sheet and expensed at the time of reward redemption. such as frequent flier points.25% and 2. Fraud Where a card is stolen. which is very expensive to an issuer. therefore merchants usually require ID card in these countries. In several countries. officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank. rewards points cut dramatically into an issuer's bottom line. may close the bank entirely. rewards will generally cost the issuer between 0. Rewards Qantas Frequent Flyer co-branded credit cards Many credit card customers receive rewards. which may or may not include balance transfers. With a fractured and competitive environment. in some cases. be at the expense of the merchant.0% of the spend. or other special uses. as the charge off number climbs or becomes erratic. However. and in the most extreme cases. Depending on the type of card. redeeming awards is usually a feature that is very well hidden by the issuers. merchants will lose the money if no ID card was asked for. especially in mail order cases where the merchant cannot claim sight of the card. gift certificates. Others encourage redemption for lower cost merchandise. On their servicing website. . These refunds will. As a result. some issuers discourage redemption by forcing the cardholder to call customer service for rewards. instead of an airline ticket. There is a case to be made that rewards not redeemed should follow the same path as gift cards that are not used: in certain states the gift card breakage goes to the state's treasury. or an unauthorized duplicate made. most card issuers will refund some or all of the charges that the customer has received for things they did not buy. and rewards points and related incentives must be carefully managed to ensure a profitable portfolio. the cardholder may be encouraged to redeem for a gift certificate instead. The same could happen to the value of points or cash not redeemed. cash advances.

The majority of this fee. which is why some merchants prefer cash. Revenues Offsetting costs are the following revenues: Interchange fees Interchange fees are charged by the merchant's acquirer to a card-accepting merchant as component of the so-called merchant discount rate (also referred to as "merchant service fee"). The merchant pays a merchant discount fee that is typically 2 to 3 percent (this is negotiated. called the interchange fee.). but also from card to card. Such customers are called "diabolicals" by the credit card companies that try to avoid them at all cost. etc.The cost of fraud is high. or even cheques. With a corporate card. and the merchant's acquirer. "Soft fraud" is fraud committed by the customer himself: getting a card and using it with no intention ever to repay the balance. Each transaction is authenticated through a call to the user mobile phone. in the UK in 2004 it was over £500 million. the interchange is also often shared by the Company in whose name the card is issued as an incentive to use that issuer's card instead of someone else's. with business cards and rewards cards generally costing the merchants more to process). . but will vary not only from merchant to merchant. but parts of it go to the processing network. Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill. debit cards. the card association (American Express. goes to the issuing bank. MasterCard. Security An additional feature to secure the credit card transaction and prohibit the use of a lost credit card is the MobiClear solution. The transaction is released once the transaction has been confirmed by the cardholder pushing his/her pin code during the call. Visa.

"rate tarts" or "gamers. but this will vary greatly with the type of customers represented in their portfolio. the authorized and settled transaction amounts. Industry jargon for customer categories Customers who do not pay in full the amount owed on their monthly statement (the "balance") by the due date (that is." or "convenience users". having no ceiling on interest rates and fees. whether the cards are physically present. For a typical credit card issuer. while customers who use their cards for business and spend hundreds of thousands of dollars a year on their cards while paying off balances every month will have very healthy interchange revenues. Other states. whereas regular rates can be as high as 40 percent. inviting some banks to establish their credit card operations there. Customers who carry high balances may generate low interchange revenue due to credit line limitations. say." Interest on outstanding balances Interest charges vary widely from card issuer to card issuer. for example.The interchange fee that applies to a particular merchant is a function of many variables including the type of merchant.99%) that applies retroactively. there's no federal limit on the interest or late fees credit card issuers can charge. 24. the interest rates are set by the states. . like South Dakota." Those who pay in full (pay the entire balance) are known in the industry as "transactors. have very weak usury laws. Cash withdrawals will never carry the teaser rate. So customers should be wary of these offers that usually contain some traps. etc. and is replaced by a penalty interest rate (for example. the merchant's average transaction amount. at the end of the "grace period") and are not in a promotional period owe interest ("finance charges") are known in the industry as "revolvers. there are "teaser" rates in effect for initial periods of time (as low as zero percent for. if the card's magnetic stripe is read or if the transaction is hand-keyed or entered on a website. when the transaction is settled. In the U. Those that shift usage of their credit cards or transfer balances frequently are known in the industry as "rate surfers". Often. like Delaware. with some states. the specific type of card. interchange fee revenues may represent about fifteen percent of total revenues.S. The teaser rate no longer applies if the customer doesn't pay his bills on time. six months).

Transactions in a foreign currency (as much as 3% of the amount). the credit card is a very convenient alternative to paying by cash. That is. MasterCard. Fees charged to customers The major fees are for: • • Late payments Charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake). You then repay by making monthly payments towards the amount borrowed. phone payment fee) Cash advances and convenience cheques (often 3% of the amount). you do not have to repay the whole borrowed amount in full at one go. that require full payment of the borrowed amount each month. such as the American Express card. sometimes a percentage of the credit limit. Issuers love monthly fees as it allows them to charge substantial amounts without the customer realizing how expensive the charge really is (a monthly amount is perceived as half the price of the equivalent annual fee) • Foreign Exchange Premium Advantages vs. or any other network allows you to pay for purchases or services by borrowing from the credit card company. A few financial institutions do not charge a fee for this. • Membership fees (annual or monthly). Disadvantages A credit card from VISA. they will also charge you interest rates for anything you had purchased.Note that for some banks. even if you had paid it off an outstanding balance along with interest fees. for the next two months.g. Either way. Then there are charge cards. . called over limit fees • • Returned cheque fees or payment processing fees (e.

This allows you a lot of flexibility. Other facilities afforded on a credit card include reward points on card usage.ordering/shopping online or by phone. insurance cover against air and road accidents. They are cheaper for short-term borrowing . not the full loan amount. through ATMs and other withdrawal centres. International credit cards you financial flexibility when you travel abroad. Enjoy a revolving credit limit without any charges for a limited period (mostly 20 to 50 days) Transact money of more than one currency. monthly instalments. They allow accurate record-keeping by consolidating purchases into a single statement. • • • Disadvantages: . Under certain circumstances. and so on. Have the option of paying only a part of the total expenses.interest is only paid on the remaining debt. wherever you are. They allow convenient remote purchasing . All credit cards have built-in safety features like signatures and personal identification numbers. without ready cash and paying for them at a later date. Many cards offer additional benefits such as additional insurance cover on purchases. The balance amount can be carried forward. They allow you to pay for large purchases in small. • • • Advantages: • • • They allow you to make purchases on credit without carrying around a lot of cash. from one country to another. with an interest charged. loss of baggage.Essentially a credit card allows you to: • • • Purchase products or services whenever and wherever you want. air miles and discounts on holidays. Withdraw cash whenever. they allow you to withhold payment for merchandise which proves defective. cash back.

Over the last two years. the PSBs. For instance. which are the mainstay of the Indian Banking system. • • • Credit cards are a relatively expensive way of obtaining credit if you don't use them carefully. falling revenues from traditional sources. PSBs. On the one hand. The use of a large number of credit cards can get you even further into debt. The PSBs are of course currently working out challenging strategies even as 20 percent of their massive employee strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS) schemes. excessive non Performing Assets (Npas) and excessive governmental equity. Therefore one of the means for them to combat the PSBs has been through the merger and acquisition (M& A) route. the industry has witnessed several such instances. The private players however cannot match the PSB’s great reach. great size and access to low cost deposits. are in the process of shedding their flab in terms of excessive manpower. Hdfc Bank’s merger with Times . especially because of the high interest rates and other costs. lack of modern technology and a massive workforce while the new private sector banks are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service. while on the other hand the private sector banks are consolidating themselves through mergers and acquisitions. CHAPTER 4 CURRENT SCENARIO Banking scenario The industry is currently in a transition phase. which currently account for more than 78 percent of total banking industry assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000).• You may become an impulsive buyer and tend to overspend because of the ease of using credit cards. Lost or stolen cards may result in some unwanted expense and inconvenience. Cards can encourage the purchasing of goods and services you cannot really afford.

the public sector banks hold over 75 percent of total assets of the banking industry. Indusind Bank. while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS schemes. The UTI bank. Centurion Bank. phone banking. 29 private banks (these do not have government stake. they may be publicly listed and traded on stock exchanges) and 31 foreign banks.Bank.27 public sector banks (that is with the Government of India holding a stake). They have a combined network of over 53. debit cards. anywhere banking. foreign banks. mobile banking. a rating agency. The Indian banking industry is currently termed as strong. According to a report by ICRA Limited. Automatic Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena.000 ATMs. have been permitted to open up to 12 branches a year with effect from 1998-99 as against the earlier stipulation of 8 branches. Anagram Finance and Bank of Madura. following India’s commitment to the W To agreement in respect of the services sector. including both new and the existing ones.Global Trust Bank merger however opened a pandora’s box and brought about the realization that all was not well in the functioning of many of the private sector banks. Also. with the private and foreign banks holding 18.5% respectively. Private sector Banks have pioneered internet banking. Meanwhile the economic and corporate sector slowdown has led to an increasing number of banks focusing on the retail segment. Banks with their phenomenal reach and a regular interface with the retail investor are the best placed to enter into the insurance sector.2% and 6. Bank of Punjab. Talks of government diluting their equity from 51 percent to 33 percent in November 2000 have also opened up a new opportunity for the takeover of even the PSBs. Icici Bank’s acquisition of ITC Classic. Vysya Bank are said to be on the lookout. India has 88 scheduled commercial banks (SCBs) . The FDI rules being more rationalized in Q1FY02 may also pave the way for foreign banks taking the M& A route to acquire willing Indian partners. Many of them are also entering the new vistas of Insurance.000 branches and 17. Banks in India have been allowed to provide fee-based insurance services without risk participation invest in an insurance company for providing infrastructure and services support and set up of a separate joint-venture insurance company with risk participation Currently. having weathered the global economic slowdown and showing good numbers with strong support flowing in from the .

088 ATMs. Furthermore. 82 per cent of staff and 60.7 billion in April-September 2007.3 per cent till 2011.640 branches or offices. financial services and insurance (BFSI).3 per cent of all ATMs. India has the potential to process 30 per cent of the banking transactions in the US by the year 2010. 893.57 per cent in November 2008 under the impact of these measures. 2008. According to a study by Dun & Bradstreet (an international research body)—"India's Top Banks 2008"—there has been a significant growth in the banking infrastructure. reduction of the statutory liquidity ratio (SLR).7 per cent of all offices. together account for 38 per cent of India's outsourcing industry (worth US$ 47. a report "Opportunities in Indian Banking Sector". RNCOS. housing finance companies (HFCs) and mutual funds (MFs). the average call rate which was at 10. Banking capital (net) amounted to US$ 4. Indian financial markets have generally remained orderly during 2008-09. the Reserve Bank announced a series of measures beginning September 16. which banks could access without any collateral. non-resident Indian (NRI) deposits witnessed a net inflow of US$ 1.1 billion in . included significant reduction in the cash reserve ratio (CRR). Measures aimed at expanding the rupee liquidity.8 billion in April-September 2008 as compared with US$ 5. Taking into account all banks in India.52 per cent declined to 7. Public sector banks made up a large chunk of the infrastructure.356 employees and 27. According to a report by McKinsey and NASSCOM. Thus.Reserve Bank of India (RBI) measures. According to the RBI. Banking. with 87.8 billion in 2007). Outsourcing by the BFSI to India is expected to grow at an annual rate of 30–35 per cent. In view of the tight liquidity conditions in the domestic money markets in September 2008. there are overall 56. and extending a special refinance facility. by market research company. forecasts that the Indian banking sector will grow at a healthy compound annual growth rate (CAGR) of around 23. opening a special repo window under the liquidity adjustment facility (LAF) for banks for onlending to the non-banking financial companies (NBFCs). Among the components of banking capital.

CAR. the amount of funds banks have to keep on deposit with it.50 and reverse repo rate to 5. The growth in advances reflects that the net interest income (NIM) too would indicate higher growth rate. According to latest Reserve Bank of India (RBI) data. which had been reduced in December 2008. bank credit grew by 24. a turnaround from net outflow of US$ 78 million in AprilSeptember 2007. Market share. banks in India put up strong growth and profit numbers in the October-end-December 2008 period owing to high credit growth and easing of yield on government bonds. The resulting credit growth was even better at 41 per cent during the April-endDecember 2008 period. This included 27 Public Sector Banks (PSBs). there were 296 Commercial banks operating in India. at which it absorbs cash from the banking system. Further. Exposure norms. The CRR rate. were further reduced – CRR to 5 per cent. NPAs.5 per cent and reverse repo.6 per cent year-on-year as of December 19.50 per cent. (its lending rate) repo rate to 5. 42 Foreign and 196 Regional Rural Banks. Deposits grew by 20. RBI has taken a number of steps to lower the cost of credit in this quarter like cutting cash reserve ratio (CRR). The reserve money lying with the RBI as on November 21. 2008. • The banking sector is dominated by Scheduled Commercial Banks (SCBs). 31 Private. 2008. Top Indian banks have increased their earnings by almost 40 per cent year-on-year for the same period.00. to 4 per cent in January 2009. Indian Banking Sector An analysis of Indian Banking sector including the Growth in advances and deposits. to 5.April-September 2008.28 billion and RBI’s credit to the commercial sector stood at US$ 3. As at endMarch 2002. Retail Banking Initiatives and Major Players. repo and reverse repo rate. repo rate to 6. is a total amount of US$ 179. closely monitors developments in the whole financial sector.6 per cent as of December 19. . 2008 as per the January 2009 bulletin. • The Reserve Bank of India (RBI). as the central bank of the country.65 billion.

According to one estimate. phone banking. • Retail Banking is the new mantra in the banking sector.. mobile banking. a growth of 14% as against 18% registered in the previous year. processing and sharing credit information on borrowers of credit institutions. And on advances. lowering of ceiling on exposure to a single borrower and group exposure etc. • With a view to provide an institutional mechanism for sharing of information on borrowers/ potential borrowers by banks and Financial Institutions.5%against 17. on the deposit front. (Cibil) was set up in August 2000. • The RBI is now planning to transfer of its stakes in the SBI. are among the important measures in order to improve the banking Sector. The home loans alone account for nearly two-third of the total retail portfolio of the bank. leading creating the second largest bank in India with a balance sheet size of Rs1040bn. The Bureau provides a framework for collecting.Also. the Government has sought to lower its holding in PSBs to a minimum of 33 per cent of total capital by allowing them to raise capital from the market. Icici and its two subsidiaries merged with Icici Bank. Also. tighter asset classification norms. • State Bank of India is still the largest bank in India with the market share of 20%. dispensing with the concept of ‘past due’ for recognition of NPAs. • A minimum stipulated Capital Adequacy Ratio (CAR) was introduced to strengthen the ability of banks to absorb losses and the ratio has subsequently been raised from 8% to 9%. • Higher provisioning norms. the retail segment is expected to grow at 30-40% in the coming years. ATMs and bill payments are the new buzz words that banks are using to lure customers.3 % of the earlier year. SBI and Hdfc are the promoters of the Cibil. the Credit Information Bureau (India) Ltd. NHB and National Bank for Agricultural and Rural Development to the private players. • Net banking. the growth was 14. there were 67 scheduled co-operative banks consisting of 51 scheduled urban cooperative banks and 16 scheduled state co-operative banks. It is proposed to hike the CAR to 12% by 2004 based on the Basle Committee recommendations. . • Scheduled commercial banks touched.

on January 1.000 new branches across the country to cover 100. year-on-year (y-o-y). Mr O P Bhatt. the highest amount collected by any bank in the country.5%). The bank had decided to rope in 300 new customers every year for each branch using initiatives. Bank of India and Union Bank are expected to lead among PSU Banks. • The finance ministry spelt out structure of the government-sponsored ARC called the Asset Reconstruction Company (India) Limited (Arcil).82 billion) a year ago. growth in broad money (M3). Growth of Banks HDFC Bank and Axis Bank continue to remain as leaders of the private sector banks. 2009 lower than 22. According to the latest RBI data. according to the bank Chairman.6 per cent (US$ 151. Both the banks have maintained the advances growth and NIM. According to Mr Bhatt. Punjab National Bank.2 per cent (US$ 133. Further. this pilot project of the ministry would pave way for smoother functioning of the credit market in the country. was 19. The Government will hold 49% stake and private players will hold the rest 51% .5 per cent for one-year maturity. 2009 also decided to lower interest rates on bulk deposits and to offer a maximum rate of 7.49 billion) a year ago.6 per cent (US$ 141. SBI. subject to a ceiling of 5% of the total outstanding advances (including Commercial Paper) as on March 31 of the previous year. .0 per cent (US$ 127. The State Bank of India is planning to open 1. Aggregate deposits of banks.5 per cent.04 billion) on January 2. the bank could get a record US$ 5. public sector banks (PSBs) on January 12. 2009 as compared with 24.08 billion) on January 2. Earlier. yearon-year.the majority being held by ICICI Bank (24.5 per cent to 8. convertible debentures of corporates and units of equity-oriented mutual funds.54 billion during December 2008.• Banks are free to acquire shares. expanded 20.000 villages in the coming FY 2009-10. banks had lowered the interest rates on bulk deposits from 9.

80.50 billion. According to earlier RBI data. non-resident Indian (NRI) deposits showed a net inflow of US $ 1. Net banking capital amounted to US$ 4. 2008. 2008 period. credit had risen by US$ 26. as on January 2. although deposit growth has slowed to US$ 25. Accounting for a part of banking capital.9 per cent.12 per dollar and Rs 63.37 billion. The Reserve Bank of India on January 21.18 billion in the Aprilend to September.26 billion) during April-November 2008-09 from the same period a year ago. Non-food credit by scheduled commercial banks (SCBs) was 23.7 per cent a year ago.The growth in bank credit continued to remain high.99 billion against US$ 33. increasing from net outflow of US$ 78 million in April-September 2007. total bank credit was up US$ 21. higher than 23. as compared with 23. for the third quarter (September 26-December 27.61 per euro. respectively. 2009 from 22.9 per cent (US$ 102. In the preceding quarter.7 billion in April-September 2007. 2008 period. Credit card market in India Market Share .79 billion) a year ago. as on November 21. Scheduled commercial banks’ credit to the commercial sector expanded by 27.93 per dollar and the single European unit at Rs 63.78 billion).70 per euro from Rs 49.0 per cent (US$ 77.91 billion in the same period a year ago.8 billion in April-September 2008 as compared with US$ 5. it was still stronger in the December 31 quarter period.1 billion in AprilSeptember 2008. 2008. 2009 fixed the Reference rate for the US currency at Rs 48. RBI data for deposits shows that for the Oct-end December 31. Non-food credit of scheduled commercial banks expanded by 26. year-on-year.000 crore (US$ 57.0 per cent (year-onyear) as on November 21. Lending by banks also rose more than 76 per cent to Rs 2.91 billion compared with a growth of US$ 22.1 per cent a year ago. year-on-year. as compared to the year-ago quarter when absolute growth was US$ 16. according to data available with the Reserve Bank of India (RBI). 2008. 2008).

who make purchases totalling Rs. Estimates for the year 2005-06 indicate a similar surge and aggressiveness. followed by Citibank at 20% market share. Total card spending in India is only at around 1.ICICI Bank emerged as the leader in the credit card issuance category for the year. PNB etc.000 crores per annum. 33. The total spends in the payment industry for the year 2004-05 crossed Rs. The combined share in terms of spends of the MNC Banks is about 43%. ICICI Bank is the leader in capturing maximum spends with 32% market share. announced their decision to launch their cards in the year 2005-06. ICICI Bank crossed the 36 lakh mark in terms of credit cards. J&K Bank.000 crores at the POS. Industry Spend With over 141 lakh credit cards in use in India. ICICI Bank saw its spends shoot up since 2004 end. pointing out that a combination of factors are responsible for the jump . the global leader in credit cards. ICICI Bank holds 27% market share followed by Citibank with 19% market share. For the year 2004-05. the card market in India is at a nascent stage. the pattern of usage is also undergoing a sea change. . India currently has over 141 lakh credit cardholders. The credit card numbers are expected to cross 208 lakh by March 2006. galloping ahead (within four years of its launch) of pioneer Citibank (27 lakh cards). SBI-GE occupies the third slot with 14 % market share. no new bank forayed in credit card market. Union Bank of India. However some of the key banks like UTI Bank. with its continued aggressive strategy.the high spending festival season and three simultaneous promotional programmes. registering a 62 percent growth rate. 33.22% of Asian spending. Compared to the Asian market. This reflects a growth of 53% over the previous year.

There are 11 major types of credit cards available in India. Major Credit Card Providers in India Following are major credit card providers in India: • • • • • • • • • • • • • • • • • • ABN Amro HDFC American Express ICICI Bank Axis Bank SBI Bank of Baroda Canara Bank Citibank Visa HSBC MasterCard Deutsche Bank Amex Barclays Bank Diners Club Standard Chartered Kotak Mahindra Various types of credit card schemes offered by different banks ABN Amro Credit Cards ABN Amro is issuing nine credit cards in India.Market for credit cards in India is made up of 18 major banks and financial institutions providing credit card products and services. They may be mentioned as below: • • • • • ABN AMRO Freedom Credit Card ABN AMRO One Credit Card ABN AMRO Smart Gold Credit Card ABN AMRO Titanium One Credit Card ABN AMRO Wellness Credit Card .

They may be mentioned as below: • • • • • • • • • • • American Express Kingfisher First Credit Card American Express Credit Card American Express Platinum Credit Card American Express India Today Group Credit Card American Express Indian Airlines Credit Card American Express Indian Airlines Gold Charge Card American Express HPCL Credit Card American Express Indian Airlines Green Charge Card American Express Gold Credit Card American Express Gold Charge Card American Express E Credit Card Axis Bank (UTI) Credit Cards Axis Bank (UTI) is offering nine credit cards in India.• • • • ABN AMRO MakeMyTrip Go Credit Card ABN AMRO Barista Credit Card ABN AMRO Platinum Credit Card ABN AMRO Adlabs Credit Card AMEX Credit Cards AMEX is issuing eleven credit cards in India. They may be enumerated as below: . They may be enumerated as below: • • • • • • • • • Axis Bank Gold Plus Credit Card Axis Bank Corporate Credit Card Axis Bank Gold Credit Card Axis Bank Secured Credit Card Axis Bank Visa Platinum Credit Card Axis Bank Shriram Credit Card Axis Bank Silver Plus Credit Card Axis Bank Travel Currency Card Axis Bank Silver Credit Card Bank of Baroda (BOB) Credit Cards Bank of Baroda (BOB) is issuing eight credit cards in India.

They may be named as below: • • • • • • • • • • • • • • • • • • • • • • • Citibank Platinum Credit Card Citibank Choice Credit Card First Citizen Citibank Credit Card Reliance Gold Credit Card Citibank Cash Back Credit Card Reliance Silver Credit Card Jet Airways Citibank Gold Credit Card Vodafone Citibank Credit Card Jet Airways Citibank Platinum Credit Card MTV Citibank Credit Card Jet Airways CitiBusiness Credit Card International Times Credit Card Jet Airways Citibank Silver Credit Card CRY Citibank Credit Card Diners Club British Airways Credit Card WWF Citibank Credit Card IndianOil Citibank Gold Credit Card Citibank Woman’s Credit Card IndianOil Citibank Credit Card Citibank Woman’s Visa Mini Credit Card Maruti Suzuki Auto Credit Card Diners Club International Credit Card Citibank Gold Credit Card .• • • • • • • • BOBCARD Corporate Global Credit Card BOBCARD Exclusive Woman credit card NEXTGEN BOBCARD Gold Credit Card BOBACRD Exclusive Youth Credit Card BOBACRD Gold Visa Credit Card BOBACARD Silver Credit Card BOBACRD Gold MasterCard Credit Card BOBACARD Exclusive Credit Card Citibank Citibank is issuing 26 credit cards in India.

• • • Taj Epicure Diners Club Credit Card Citibank Silver Credit Card Delhi Metro Citibank Credit Card .

5% per month. Credit limit is higher than most cards. HDFC Bank Silver Credit Card Following are some features of HDFC Bank Silver Credit Card: • • • • • • • Cardholders can earn 1 reward point for every INR 150 they spend with the card. HDFC Bank Gold Credit Card Following are some facts about HDFC Bank Gold Credit Card: • Cardholders receive a maximum of 5% cash back. Cardholders receive discounts on products and services of HSBC Bank.5%. These cards offer a wide range of benefits and rewards for cardholders. Minimum cash advance fee is INR 300.HDFC Bank is bringing out eleven credit card products in India. There are zero liabilities in case of lost cards. Rate of interest is low. Cardholders receive rebates at hotels and clubs. Minimum cash advance fee is INR 300. Renewal fee is INR 700. Cash advance fee is 2. Joining fee is INR 500. . Cash advance fee is 2. And air tickets.5% per month. Cardholders earn 2 reward points in case of every INR 150 spent with the card.000. Cash advance fee is 2. Fees for joining and renewal vary. Joining fee is INR 300. Regular interest rate is 2. Minimum cash advance fee is INR 300.95% per month.95% per month. This offer is applicable for train Renewal fee is INR 2. • • • • • • • • HDFC Bank Titanium Credit Card Following are salient features of HDFC Bank Titanium Credit Card: • • • • • • Cardholders receive exclusive concierge services.65% per month. Regular interest rate is 2. Regular interest rate is 2. Issuer is MasterCard. Issuer is VISA.

Regular interest rate is 2.000. There is an accelerated rewards program. Renewal fee is INR 2. Renewal fee is INR 3.5% per month. Minimum cash advance fee is INR 250. Minimum There are 0% fuel surcharge facilities available at all outlets. Rate of interest is low and there are balance transfer options as well.• • • There is an accelerated reward program that is based on expenses made with the card. • • • Following are some other credit cards provided by HDFC Bank in India: • • • • • • .000.65% per month.5% per month each. Card issuer is VISA. There are concierge services. HDFC Bank Platinum plus Credit Card Following are some salient features of HDFC Bank Platinum Plus Credit Card: • • • • • • Cardholders receive rebates at hotels. Regular interest rate and cash advance fee are both 2. HDFC Woman’s Gold Credit Card Following are some features of HDFC Woman’s Gold Credit Card: • • • • • • • • Cardholders receive a maximum of 5% cash back on buys. There are balance transfer and 0% fuel surcharge facilities. There is a maximum of 5% cash back in case of air tickets. Joining fee is INR 500. Joining fee is INR 1. Issuer is MasterCard. Issuer is VISA.999. HDFC Bank Health Plus Credit Card HDFC Bank Platinum Plus Credit Card HDFC Bank Corporate Credit Card HDFC Bank Visa Signature Credit Card HDFC Bank Gold Business Credit Card HDFC Bank Value Plus Credit Card cash advance fee is INR 300. Cash advance fee is 2. There are a number of options to redeem points.

Cash advance fee is 3. Cardholders receive air accident insurance cover worth INR 3 crores. Cardholders receive Free Welcome gifts of INR 35. There are 0% fuel surcharge facilities.000.000.ICICI Bank is issuing 29 separate credit cards in India. There are 0% fuel surcharge facilities at all outlets. Joining fee is INR 25. These cards cater to a wide client base including sports lovers and businessmen for example.99% per month. Joining fee is INR 25. ICICI Signature Credit Card Following are some points on ICICI Signature Credit Card: • • • • • Cardholders get 5 points for International Spends worth INR 100. Renewal fee is INR 2. Issuer is VISA. Cards are only offered via invitation. Cash and credit limits are high. watches.500. .500.000. Cardholders receive 4 points for spending INR 100 with the card for travel purposes. Issuer is VISA. Regular interest rate is 1. Renewal fee is INR 2. • • • • • ICICI Bank Platinum Credit Card Following are some features of ICICI Bank Platinum Credit Card: • • • • • • • • • • Cardholders get access to airport lounges on a priority basis.15% per month.75% per month. Travel Points or Travel Vouchers. Cardholders get 2 points for spending INR 100 with the card for dining purposes. Cardholders receive air accident insurance covers worth INR 1crore. Prizes could be Tag Heuer Regular interest rate and cash advance fees are 2.

15% per month. Issuer is VISA. Cash advance fee is 3. Cash and credit limits are high. Regular interest rate is 2.ICICI Bank Platinum Premiere Credit Card • • • • • • • • Cardholders receive personalized concierge services. There are 0% fuel surcharge facilities at all outlets. Joining and renewal are free.95% per month. ICICI Bank Titanium Credit Card ICICI BPL AMWAY Credit Card ICICI Bank Solid Gold (Visa) Credit Card ICICI Bank Big Bazaar Silver Credit Card ICICI Bank Solid Gold (MasterCard) Credit Card ICICI Bank Big Bazaar Gold Credit Card ICICI Bank Gold American Express  Credit Card ICICI Bank Trinethra Credit Card ICICI Bank Travel Smart Credit Card ICICI Bank Orchid An Ecotel Credit Card ICICI Bank Golf Credit Card ICICI Bank Mohun Bagan Credit Card ICICI Megamart Credit Card ICICI Bank Ebony Credit Card ICICI XBOX 360 Credit Card ICICI Bank Airtel Silver Credit Card ICICI Sarovar Hotels Credit Card ICICI Bank Airtel Gold Credit Card ICICI Bank HPCL Silver Credit Card ICICI Bank Toyota Credit Card ICICI Bank HPCL Gold Credit Card ICICI Bank Thomas Cook Titanium Credit Card ICICI PRU Life Credit Card Following are other credit cards issued by ICICI Bank in India: • • • • • • • • • • • • • • • • • • • • • • • . Cardholders receive air accident insurance covers worth INR 40 lakhs.

These cards are highly availed by Indian consumers on account of their low interest rates. Rewards credit cards available in India can be subdivided into six categories – Points. ICICI Bank Platinum Credit Card Following are some salient features of ICICI Bank Platinum Credit Card: • • Cardholders receive priority access facilities to airport lounges. Hotels and Travels. Regular interest rate is 1. A number of banks are offering low interest credit cards in India in order to help the cardholders manage their finances in a better way. Retail. These cards provide a wide variety of financial benefits to holders.• • • ICICI Bank Ascent American Express Credit Card ICICI BPL Mobile Credit Card ICICI Bank Platinum Identity Credit Card In Indian credit card market there are 12 major types of credit cards being provided by banks and financial institutions. Auto and Fuel. .99% per month. Major Indian Credit Card Types Following are various types of credit cards available in India: • • • • • • • • • • • Premium Credit Cards Cash Back Credit Cards Gold Credit Cards Airline Credit Cards Silver Credit Cards Business Credit Cards Balance Transfer Credit Cards Co-branded Credit Cards Low Interest Credit Cards Lifetime Free Credit Cards Rewards There are some additional credit cards that are available in India as well.

15% per month.000.• • • • • • • • • Cardholders receive air accident insurance coverage worth INR 1 crore. The minimum cash advance fee is INR 300. There are accelerated rewards programs that are provided on the basis of expenditure Issuer is MasterCard. • • . Renewal fee is INR 2. There are 0% fuel surcharge facilities.9%.500. There are 0% fuel surcharge facilities that can only be availed at HPCL outlets. Joining fee is INR 25. There is a 5% discount on super saver fares. Cardholders have higher cash limits and credit limits. • • • • • • • • • HDFC Bank Titanium Credit Card Following are the salient features of HDFC Bank Titanium Credit Card: • • • • • Cardholders receive exclusive concierge services. Card issuer is VISA. Credit card issuer is AMEX. American Express Indian Airlines Credit Card American Express Indian Airlines Credit Card has the following salient features: • The cardholders receive 10% discounts on business class flights and 15% discounts Renewal fee is INR 3750. Cardholders receive business class upgrades for free. Cardholders receive 0% fuel surcharge and balance transfer facilities. with the card. Cash advance fee is 3. Joining fee is INR 3750. Cash advance fee is 1. The card is offered via invitation only. on economy flights.65% per month.5% per month. Regular interest rate is 2. Regular interest rate is 1. Cardholders receive complimentary tickets.9%. Cardholders receive rebates at hotels and clubs. Issuing bank is ICICI Bank. Cash advance fee is 2.

Some fraudsters go through trash to find discarded receipts or carbon for obtaining information and then use the account number illegally. fraudsters steal credit card information. Sometimes. These forums bring together people who steal the numbers and those who use them. There were underground “carder” forums where credit card numbers are bought and sold. HDFC Bank Visa Signature Credit Card BOBCARD Exclusive Woman credit card HDFC Bank Platinum Plus Credit Card BOBACRD Exclusive Youth Credit Card HDFC Bank Corporate Credit Card BOBACARD Silver Credit Card Hero Honda SBI Credit Card BOBACARD Exclusive Credit Card BOBCARD Corporate Global Credit Card Axis Bank Secured Credit Card NEXTGEN BOBCARD Gold Credit Card HSBC Platinum Credit Card BOBACRD Gold Visa Credit Card Yatra Barclaycard Platinum Credit Card BOBACRD Gold MasterCard Credit Card ABN AMRO Platinum Credit Card Following are some other low interest credit cards that are available in India: • • • • • • • • • • • • • • • • CREDIT CARD FRAUDS There is an international racket of cyber criminals. An FBI report . people submit personal details and credit card information to fraudulent emails. An individual researcher in cyber crime and cyber laws.• • Issuing bank is HDFC Bank. Credit card information in India is sold to cyber criminals in other countries. Patil said economic offences using credit cards have increased in India and countries like US. Due to lack of awareness. . Joining fees and renewal fees are variable. The information is misused for carrying out major financial frauds.

“The frauds are increasing because of problem faced in extradition of cyber criminals from other countries. Unfortunately. the Mail Order Telephone Order (MOTO) type account for the bulk of credit card frauds. but the details are given on the application form to buy goods or services or when the transaction is done on the telephone. . cyber law expert Rohas Nagpal said India was so far not associated with any extradition treaty with a foreign country due which the cyber criminals in could not be held. There were about 60 million credit card holders in the sixties and according to an estimate. Sometimes the banks and credit card companies try to save their skin by inserting a clause in the relevant contract. credit cards have changed the way we live. Otherwise inaccessible personal information stored on computers is stolen in order to use a card. Due to the virtual explosion of credit card business throughout the world.indicated that credit cards were largely responsible for the $ 315 billion loss the US endured from financial fraud in 2005. security has become critical in the entire process. would not be liable for the fraudulent transaction unless the client loses his/her card and reports the loss immediately. the company. credit card companies make a provision in their contract with the client that they. The courts have placed the burden of loss on the issuers. In India. US expert Chris Goggans said even US is facing difficulties in extradition of criminals. This unilateral provision however has not stood the test of legal scrutiny. easy and fashionable alternative to wads of paper. This is purported to absolve the company in case a fraud occurs on the stolen card and the client fails to notify the loss in time. This occurs when the card is not actually presented. Today plastic is the convenient. “The numbers are increasing. the number has gone up to more than a trillion now. along with the convenience has come related crime. With one swipe. Credit card fraud involves withdrawal of funds and obtaining of goods and services by using an unauthorized account. A study in Europe revealed that over 22 million customers fell victim to credit card fraud in 2006. Even during the panel discussion on cyber terrorism at the hacker’s convention. In India.

provide penalties for the tampering of computer source documents and hacking of computer systems. been made of Credit cards or financial transactions. This procedure is called skimming of the cards. identity theft is also quite prevalent and is supposed to be one of the fastest growing offences in America. Scared by the ever increasing cases of credit card fraud. Techniques have been developed whereby the number and other information on the magnetic strip is erased and a new number is embossed.Fraud through fake cards is not as rampant in India as in the USA. Visa has devised a Payer Authentication System based on PIN similar to the system used on ATM cards. This is a channel between the bank and the customer used to authorize online transactions. In the case of online transactions. In the USA. Manual reviews of the transactions on the card are undertaken. With the increase in cross border ecommerce the issuers in India will have to update their arsenal to combat the forgers on the same lines as their Western counterparts. ‘site cloning’ is resorted to where the site clone created is made to look like the original site in order to obtain the credit card details of unsuspecting customers. however. The Information Technology Act and Rules. but this requires a high level of human intervention and increases costs. passed in 2000. The fraudsters adopt another person’s identity to gain access to their monetary sources. the affected companies and banks have taken various steps to minimize it. false merchant sites are also created where cheap goods lure customers into giving their card details. Similarly. No specific mention has. . When the card does not work on the swiping machine. In the USA. The RBI has formed the Credit Information Bureau of India (CIBIL) in collaboration with Dun and Bradstreet who will maintain the records of all individuals who want to avail of finance from banks and credit card companies in India. Address Verification System (AVS) has been developed for use in the ‘card not present’ scenario The system is designed to check whether the address given by the buyer matches with the one on record. the merchant manually processes the details of the card to complete the sale.

He's been charged for cheating under Section 420. Please make sure you conduct any ATM transaction in complete privacy. A missing credit card bill could mean an identity thief has taken over your account and changed your billing . 2003 after nearly an year of hide and seek with CC Avenue.000. Please follow up with Bank’s Credit Cards Customer Care if your bills don't arrive on time. please make sure that the charge slip is complete before signing. Please pay attention to your billing cycles. please ensure that there are no strange objects in the insertion panel of the ATM. Please remember to take your Debit/Credit Card back after completing your ATM transaction. Please ensure the card is swiped in your presence. Treat it as carefully as you would treat your cash. Before you use an ATM. of nearly Rs 900. None of them were for real. If you spot any suspicious looking people at or around any ATM. please inform the concerned Call Center/Branch personnel immediately. If your card is held back by the ATM. Protect yourself from credit Card fraud by following the simple suggestions given below: Do's • • • • • • • • • • • • • • • • • • • • • • • • If you lose your credit card. With a plan that was both ingenious and naïve. When you make any transactions.Fantastic Example of Credit Card Fraud Amit Tiwari had many names.He was arrested by the Mumbai Police on August 21. the 21-year-old engineering student from Pune tried to defraud a Mumbai-based credit card processing company. Please keep your card in a safe place. please report the loss immediately. please inform the security guard immediately. Amit will remain in custody till Friday. Please change your ATM PIN once every 3 months. When you dispose of a card at the time of renewal/up gradation. please make sure to cut it diagonally before disposal. August 29. bank accounts and clients. CC Avenue.

airline tickets. employ outside help or are having service work done in your home. Identity thieves may use phony offers to get you to give them your personal information. account numbers. Please keep a list of all credit cards. Please keep items with personal information in a safe place. .address to cover his tracks. even if he/she claims to represent the Bank. travel itineraries and anything else that displays your card numbers. Please do not hand over the card to anyone. Don’ts • • • • • • • • Please do not disclose your Credit Card Number/ATM PIN to anyone. Please do not write the ATM PIN on the card or on a paper which you carry along with the card. Never get carried away by strangers who try to help you use the ATM machine. Please sign your credit cards as soon as you get them. expiry dates. Please secure all personal information in your home. • • • • • • • • • • • • Please be wary of promotional scams. Please destroy and dispose of copies of receipts. especially if you have roommates. Please check your cards periodically to make sure none are missing. and the customer service phone numbers in a secure place so that you can quickly contact Bank’s Credit Cards Customer Care in case your cards are lost or stolen.

• • • • Please be wary of promotional scams. • • Please keep your passwords secret.Do's and don'ts for online transactions: • • • • Always Bank's Netsafe feature for making online transactions. • • Please keep a record of your transactions. • • Please be careful when providing personal information online. Identity thieves may use phony offers to get you to give them your personal information. Identify security clues such as a lock image at the bottom of your browser. Preferably transact on sites which mandate validation of CVC2 value (the last 3 digits after the card number. Information that travels over the Internet (such as email) is not fully protected from being read by outside parties. • • Please look for signs of security. Online passwords should be kept secret from outside parties the same way you protect your ATM PIN. mentioned on the signature panel at the back of the card) or at websites that are certified by Verified-by-Visa or MasterCard Secure Code. In case you use your Credit Card for online transactions in Internet cafes or publicuse computers. Promptly notify your financial institution of any suspicious email activities. such as:Is the email from somebody you know? Have you received emails from this sender before? Are you expecting email with an attachment from this sender? Does email from this sender with the contents described in the subject line and the .If you have not registered for it. Some online stores may require you to register with them via a username and password before buying. It is safe and secure. Back up your transaction by saving and/or printing the order confirmation. Most reputed merchant sites use encryption technologies that will protect your private data from being accessed by others as you conduct an online transaction. Please make sure that you verify a business's legitimacy by visiting its web site. Immediately investigate suspicious activity to prevent any possible additional fraud before it occurs. and/or checking with a reliable resource. • • Never send payment information via email. Just as you save store receipts. you should keep records of your online purchases. • • Please review your monthly account statement thoroughly. please visit the Netsafe page. please ensure that you erase the history of websites visited/accessed. • • • • • • Please open and respond only to emails that pass some basic tests. calling a phone number obtained from a trusted source. These signs indicate that only you and the merchant can view your payment information. Never give out your personal or account information to anyone you do not trust. or a URL that begins with https://.

few alternatives available -subject INDUSTRY & to RBI rules RIVALRY Intense competition .name of the attachment make sense? • Does this email contain a virus? CHAPTER 5 INDUSTRY ANALYSIS Porter’s FIVE FORCE analysis for Indian Credit Card Industry BARGAINING POWER OF SUPPLIERS -low supplier bargaining power .

Low switching cost .Large no. of alternatives -Homogenous services by banks KEY POINTS: Supply: Credit policies are decided by banks in consultation with the Reserve Bank of India(RBI).Govt.THREAT OF NEW ENTRANT -LOW BARRIERS TO ENTRY . Demand: India is a growing economy and demand for household credit is high though it could be cyclical. policies are supportive -Globalization and liberalization policy THREAT OF SUBSTITUTES High threat from substitutes BARGAINING POWER OF CUSTOMERS -High bargaining power . Barriers to entry: .

public and foreign banks operating in the industry. RIVALRY AMONG THE INDUSTRY Rivalry among the industry is very high.High There are public sector banks. The numbers of factors that have contributed to the increase rivalry are as follows: 1. newer and newer private & foreign firms are opening their branches in India. banking sector became open for everybody. So. There are so many private. Amex etc. private sector and foreign banks competing in similar business lines. Competition. Due to government liberalization and globalization policy. They are fighting for same customers. investment in technology and branch network. This has intensified the competition. of Banks providing credit card facility: . Bargaining power of suppliers: Few suppliers available such as Mastercard. A large no.Licensing requirement. Bargaining power of customers: For good creditworthy borrowers bargaining power is high due to the availability of large number of banks and credit card providers. Visa.

There are so many banks and non-financial institutions fighting for same-pie, which has intensified competition. 2. High market growth rate: India is seen as one of the biggest market place and growth rate in Indian credit card industry is also very high. This has ignited the competition. 3. Low switching cost: Customer switching cost is very low. They can easily switch from one credit card to another credit card and very little loyalty exists. 4. In differentiate services: Almost every credit card provides similar services. No differentiation exists. Every bank tries to copy each other’s services and technology, which increases the level of competition. 5. High Fixed cost: 6. High exit barrier: High exit barriers humiliate banks and credit card providers to earn profit and retain customers by providing world-class services. 7. Low government regulations: There are low regulation exist to start a new business due LPG policy adopted by India. So, sector is open for everybody. BARGAINING POWER OF SUPPLIERS Suppliers of credit cards are credit card companies along the banks. In credit card industry suppliers have low bargaining powers. Following are the reasons for low bargaining power of suppliers. 1. Nature of suppliers Suppliers are the credit card companies like MasterCard, Visa, Amex etc. they have tie ups with various banks from whom they get ready clientele. In such situations suppliers hold less bargaining power compared to clients.

2. Few alternatives Suppliers i.e. Credit Card companies and banks have no alternatives than to tie up with each other. Both have their own reasons. Credit Card companies are looking for ready clientele and banks want to provide financial services to their clients. 3. RBI Rules and Regulations Banks’ credit policies are subject to RBI rules and regulations. Banks have to behave in the way that RBI wants. So, RBI takes all decisions relating to interest rates, transaction charges etc. This reduces suppliers bargaining power. 4. Suppliers are not concentrated Banking industry’s suppliers are not concentrated. There are numerous suppliers with negligible portion to offer. So, this reduces their bargaining power. If they were concentrated then they can bargain with banks or can collectively invest in other no-risky projects.

BARGAINING POWER OF CUSTOMERS Customers of the banks and credit card companies are those who are in need of credit, loans, advances and use services of banks. Customers have high bargaining power. Following are the reasons for high bargaining power of customers. 1. Large No. of alternatives Customers have very large no. of alternatives. There are so many banks, which fight for same pie. There are foreign banks, private banks. These all increase preferences for customers.

2. Low switching cost Cost of switching from one card to another card is low. Banks have entered into fierce competition by providing variety of cards with lots extra facilities. They are free to select any bank’s service. Switching costs are becoming lower with internet banking gaining momentum and as a result consumers’ loyalties are harder to retain. 3. Undifferentiated Service Banks provide merely similar services. There is no much difference in services provided by different banks. So, bargaining power of customer increases. They cannot be charged for differentiation. 4. Full information about the market Customers have full information about the market globalization and digitization consumers have become advanced and sophisticated. They are aware with each market conditions. So, banks have to be more competitive and customer friendly to serve them.

THREAT OF NEW ENTRANT Barriers to an entry in banking industry no longer exist. So, lots of private and foreign bank are entering in the market. Competitors can come from any industry to “Disintermediate” banks. Product differentiation is very difficult for banks and exit is difficult. So, every bank strives to survive in highly competitive market. So, we see intense competition and mergers and acquisitions. Government policies are very favourable to customers and day by day it is becoming hard for credit card companies to satisfy needs of customers. There are less statutory requirements

One feature of using an investment house is that the fees that the investment house charges are tax deductible. whereas a bank it is considered personal expenses. Low entry barriers and high exit barriers ignites competition in this industry. Stocks(shares). These new products include credit union and investment houses. Every bank and credit card industry strives to survive in the shadow of these barriers. So.e. The threat of substitute products is very high. Conclusion Indian credit card sector is one of the highly competitive sectors where high growth rate and high degree of competition exist. There is a high threat for substitute. real estate etc. There are other substitutes as well for banks like mutual fund. The rate of return with using investment houses is greater than a bank. There are so many substitutes available with customers and they have high bargaining power whereas suppliers i. debentures.needed to start a new venture. Government securities. . which are not tax deductible. Threat of substitutes Competition from the non banking financial sector is increasing rapidly. credit card companies have low power in their hands. gold. Sony & software giants such as microsoft are attempting to replace the banks as intermediaries. Every bank tries to achieve economies of scale through use of technology and selecting and training man power.

. It is followed by visa which is being used by 30% of the respondents. The two are followed by classic.CHAPTER 6 ANALYSIS AND INTERPRETATION Which type of credit card do you use? Visa MasterCard Classic Gold & Diners Platinum The pie chart drawn above suggests that MasterCard leads the competition in the Ahmedabad city. 38% of the respondents use the MasterCard. gold & diners and platinum respectively.

HDFC is being used by 22% of the respondents whereas ICICI is being used by 21% of the respondents. HSBC is being used by 16% of the respondents and the rest 13% percent used credit card from various other banks such as Standard Chartered. .Which is the issuing bank of credit card? SBI HDFC ICICI HSBC Others Majority i. 28% of the respondents have credit card facility from the SBI. Citibank etc. American Express.e. where HDFC has slight edge over ICICI. There is stiff competition between HDFC and ICICI for the second position.

13% percent of them have been using the card for more than 6 years. Only 2% of the respondents are such who have used credit card for less than 2 years. 26% of the respondents fall in the category of 2 – 4 years.Since how long you have been using the credit card? < 2 years 2 – 4 years 4. .6 years Above 6 years Above pie chart suggests that 59% of the respondents has been using the credit card for more than 4 years but less than 6 years.

How much satisfied you are with your existing credit card? Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied .

36% of the respondents says that are satisfied with their credit card facility. 43% of the respondents are neither satisfied nor dissatisfied with the card that they are using i. What percentage of income do you save monthly? < 10% 10% .e. Only 11% says they are highly satisfied and 9% says that they are dissatisfied with the facility that they have. It can be seen from the pie chart above.Majority of the respondents had not much to comment on how satisfied they are. they are neutral. 1% of the respondents are highly dissatisfied with the credit card facility.20% .

None of them saves less than 10%.30% Above 30% Saving level of the respondents has turn out to be largely in the range of 20% . 24% of them saves between 10% . 63% of the respondents claims that they save 20% .20% .30%. .30% of their monthly income.20% and 13% of them saves above 30% of their monthly income.

For hotels and restaurants bill payments the card usage is 15%. for travelling and others its 11% and for health related payments card usage is merely 10%. 32% of the card usage is at petrol pumps and for shopping. .What are the major purposes for which you use credit card? Shopping Hotels Health Petrol Pump Travel and others The main use of credit card if for refueling vehicles and for shopping.

21% were professionals. 37% of the respondents were from the private sector. . and 14% each from govt. It shows people working in the private sector are the major target audience of the credit card companies. business and self employed. Sector From the sample surveyed.sector.Occupation: Self Employed Business Private Sector Professional Govt.

This Many of the housewives who uses the credit card are those which are been issued as free card along with existing card. 76 % of the respondents were male compared to just 24% of the female respondents.Sex: Male Female The chart shows that more than 2/3rd of the respondents were male. TEST OF HYPOTHESIS . The major reason for this could be that male have regular source of income.

25 YEARS 3 0 1 3 25 .40 YEARS 9 15 10 7 40 .60 YEARS 7 9 8 5 ABOVE 60 YEARS 3 4 2 1 0 OTHERS GENDER 0 FEMALE SBI HDFC ICICI HSBC OTHERS 5 8 3 3 5 24 MALE 17 20 18 13 8 76 2 2 9 0 ISSUING BANK AND THE SEX OF THE CARD HOLDER The above table shows the relationship between the credit card issued by different bank such as SBI. . HDFC. HSBC and Others and the sex of the card holders.ISSUING BANK AND AGE OF CARD HOLDER AGE < 18 YEARS SBI HDFC ICICI HSBC 0 0 0 18 . ICICI.

HDFC and ICICI. More than 75 % of the cardholders are male because they stable source of income. use the additional cards which are issued at concessional fee for family members. who are housewives.488. The table and the graph have been drawn to show if the issuing bank varies among the card holders of different age group. Table Value = 21.026 Conclusion: Since the calculated value of chi-square is less than the table value. the hypothesis that the credit card chosen by the cardholder does not depend on the age is accepted.159 and the table value is 9. they have the propensity to save more than spend. Conclusion: The Null hypothesis is accepted as the calculated value = 3. . On the other hand. Calculated Value = 15.243. these people have a greater need for credit cards. These people are settled in life.Null Hypothesis: There is no significant association between the issuing bank and the sex of the cardholder. the number of cardholders in the age group of above 40 years is low comparatively. Most of the females. It is clear from the table that nearly 52% cardholders belong to the age group of 18 – 40 years. 71% of the cardholders use SBI. This category consists of students who are using add on cards or youngsters who are yet to settle in life. Null Hypothesis: There is no significant association between the issuing bank and age of the cardholder.

.ISSUING BANK AND OCCUPATION OF CARD HOLDER OCCUPATION SELF EMPLOYED BUSINESS CC_BAN SBI K HDFC ICICI HSBC OTHERS 4 3 1 6 0 1 2 5 1 5 PRIVATE SECTOR 9 15 4 4 5 PROFESSIO NAL 4 4 9 3 1 GOVT.779 Table Value = 26. Therefore the null hypothesis that there is no relation between issuing bank and the occupation of the cardholder is rejected. the private and government sector employees. SECTOR 4 4 2 2 2 From the table it can be seen that more than 50 % of the cardholders belong to the salaried class i.296. Conclusion: Calculated Value = 31. as they have a limited source of income whereas the other 49% cardholders belong to the self employed and professional group. The credit card helps the cardholders to meet sudden expenses in case of nonavailability of cash. Null Hypothesis: There is no relationship between the issuing bank and the occupation of the card holder.e.

507 . 15000 CC_BAN SBI K HDFC ICICI HSBC OTHERS 0 0 0 0 0 1 0 4 3 0 RS. Calculated Value = 11. Those with higher income are more willing to avail the type of services offered by banks. 10000 RS. Most of the people who have taken credit cards are those whose income is greater than 10000 pm.ISSUING BANK AND INCOME OF CARD HOLDER INCOME RS. Also banks take all precautions in selecting the cardholders. Null Hypothesis: There is no association between the issuing bank and the monthly income of the card holders. 15000 RS. they generally do not issue cards to a person unless they are satisfied about the credit worthiness of the applicants.987. 10000 < RS. Table = 15. 20000 7 6 6 5 3 ABOVE 20000 14 22 11 8 10 The above table and graph has been drawn to determine the relationship between the different banks issuing credit cards and the monthly income of the card holders.

30% CC_BAN SBI K HDFC ICICI HSBC OTHERS 0 0 0 0 0 3 9 4 6 2 13 18 16 9 7 GENDER FEMALE YES NO 11 13 MALE 19 57 ABOVE 30% 6 1 1 1 4 .Conclusion: The Chi-square value is less than the table value.20% 20% . The Hypothesis that there is no association between the credit card selected and monthly income of the card holder is true. ISSUING BANK AND SAVINGS OF CARD HOLDER SAVINGS < 10% 10% .

Credit cards not only help the cardholders to acquire purchasing power. but also help in rotation of funds.30% of their monthly income. .The table shows the relationship between bank issuing credit cards and savings of the cardholders.507 Conclusion: The calculated value of chi-square is less than the table value. Respondents were asked to tick either “Yes” or “No” to show if credit cards have brought a change in their buying pattern and the data collected was tabulated. Table Value = 15. Approximately. About 30% of them feel that credit cards have changed their buying behaviour significantly. hence it can be inferred that the basis on which the cardholders selects the issuing bank doesn’t depend on their monthly income. the tendency of the people is to above something in between 20% . Calculated Value: 14. CHANGE IN BUYING BEHAVIOUR AND SEX OF CARD HOLDER This table is drawn to show if the change in buying behaviour of a credit card holder is associated with sex. Savings is shown as a percentage of the monthly income.696. Null Hypothesis: The issuing bank and monthly savings of the cardholder are independent of each other.

RS.770.They go for instant purchases or meet sudden cash shortage with the help of cards. Table Value = 3.RS. Null Hypothesis: The change in buying behaviour is not related to the sex of the card holder.25000 1 1 6 1 6 18 1 1 20 ABOVE 25000 2 2 41 Comparatively. SPENDING LIMIT ON CREDIT CARD AND INCOME OF CARD HOLDER .10000 15000 . the hypothesis that changes in buying behaviour are not related to the sex of the card holder is accepted. INCOME RS. RS. 15000 20000 ABOVE 20000 < 5000 5000 .841 Conclusion: Since the calculated value is less than the table value. 10000 . 84% of females feel that there is a change in their buying behaviour. Calculated Value = 3. 15000 .

592 Conclusion: The Calculated value is greater than the table value which means that the hypothesis that monthly spending limit of the cardholder is not related to the monthly income is rejected.40 YEARS 11 8 1 22 1 40 . Null Hypothesis: The monthly spending limit of the cardholder is not related to the monthly income.60 YEARS 10 7 1 18 1 ABOVE 60 YEARS 2 3 1 3 1 . in the sense that those who have higher income would have higher spending limit. PURPOSE OF CREDIT CARD AND AGE OF CARD HOLDER AGE 18 . Table Value = 12. Therefore the distribution for this would be skewed.The above table and graph would help us draw an inference about the relationship between the average monthly spending limit using credit cards and the monthly income. Calculated value = 33.609. The figure says that those with income level above 20000 pm have been availed spending limit above 25000 to large extent.25 YEARS SHOPPING HOTELS HEALTH PETROL PUMP TRAVEL & OTHERS 3 1 1 3 2 25 .

clothes etc. Calculated Value: 10. The early nester-first time user. just married. Null Hypothesis: The purpose of credit card usage doesnot depend upon the age of the card holder.The table and the graph above determines the relationship between purpose for which the credit card is used and the age of the card holder. 20000 9 8 2 6 2 ABOVE 20000 16 8 2 35 2 . 15000 SHOPPING HOTELS HEALTH PETROL PUMP TRAVEL & OTHERS 1 3 0 5 1 RS. The cardholders above 40 years are more prudent and cautious when they purchase as they dont want to get in heavy debts. new to his career. has greater need for consumer finance to buy durables. Table Value = 21.966. 10000 RS. 18 – 45 years of age.026 Conclusion: The value of chi-sqaure is less than the table value. the hypoyhesis that there is no association between the age of the cardholders and the purpose for which cards are used holds good. PURPOSE OF CREDIT CARD AND INCOME OF CARD HOLDER INCOME RS. 15000 RS.

507 Conclusion: The value of chi-square is less than the table value. otherwise he has to postpone the purchase.239. Null Hypothesis: The purpose for which the credit card is used is independent of the card holders’ income. But credit cards help him to purchase whatever he wants and pay later. If a person wants to make purchase.The above table determines the relationship between the purpose for which the credit card is used and the income of the cardholders. hence the hypothesis is accepted. Table Value = 15. he needs money. Calculated value = 12. MEMBERSHIP DURATION AND OCCUPATION OF THE CARD HOLDERS .

Nearly 60% of them have been using the credit card for the period greater than 4 years and less than 6 years. .OCCUPATION SELF EMPLOYE BUSINES PRIVATE PROFESSIO GOVT.026 Conclusion: The calculated value is greater than the table value hence the null hypothesis is rejected.6 YEARS ABOVE 6 YEARS 2 5 7 0 0 1 10 3 0 14 22 1 0 3 12 6 0 3 8 3 The above table shows the relationship between the duration of the membership and the occupation of the cardholder. D S SECTOR NAL SECTOR < 2 YEARS 2 . This means that there is significant relation between membership duration and the occupation of the cardholders. Null Hypothesis: There is no significant difference between membership duration and occupation Value: 28. Table Value: 21.739.4 YEARS 4 .

CORRELATION ANALYSIS GENDER * SPD_LIMIT Cross tabulation Count SPD_LIMIT < 5000 5000 .25000 GENDER FEMAL E MALE Total 2 1 3 5 3 8 7 37 44 ABOVE 25000 10 35 45 Total 24 76 100 From the above we can infer that 76% of the respondents are male which more than 2/3 rd of the sample size. 41% of the females have credit limit above 25.000 whereas 46% of the males have credit limit above 25.000.10000 15000 . This is obvious as .

15000 . . Many housewives uses credit card which are issued at concessional fees along with card hold by the male.RS.10000 INCOM RS. Overall figures reveal that majority of the cardholders have the credit above 15.000. As the income of the card holder increases the spending limit on the card also increases.000 and almost 90% of them have income above 15. INCOME * SPD_LIMIT Cross tabulation Count SPD_LIMIT < 5000 5000 . From the figures can derive that more than 90% of the credit card holders have credit limit above 15. 20000 ABOVE 20000 Total 1 1 1 3 1 6 1 8 15000 25000 6 18 20 44 ABOVE 25000 2 2 41 45 Total 10 27 63 100 The above table and graph clearly shows that their direct correlation between the income of the card holder and the spending limit allowed to the card holder. 10000 . E 15000 RS.RS.males have stable source of income and again all the females using credit card are not working women.000 per month. This is obvious as bank cannot grand higher credit limit to those who doesn’t have repayment capacity and doing so increases the chances of default.

10000 OCCUPATIO SELF N EMPLOYED BUSINESS PRIVATE SECTOR PROFESSIONAL GOVT. SECTOR Total 1 0 1 0 1 3 0 2 4 0 2 8 15000 25000 9 4 22 5 4 44 ABOVE 25000 4 8 10 16 7 45 Total 14 14 37 21 14 100 .OCCUPATION * SPD_LIMIT Cross tabulation Count SPD_LIMIT < 5000 5000 .

The figure gives clear indication that more than 50% of the cardholders are salaried class people and this category is scattered over all the categories of spending limit i. The two main purpose for which the credit card is used are for fuel and shopping. SECTOR 6 11 26 17 9 4 5 11 8 6 2 2 9 4 4 11 9 25 15 9 4 4 10 3 4 27 31 81 47 32 The statistics shows that private sector employees makes the most use of the credit card.000. . Almost 63% of the private sector people use credit card these two purpose. They use the card to cover up the cash shortage at the month end. CONSUMER SPENDING BEHAVIOUR ACCORDING OCCUPATION TRAVEL PETROL & SHOPPING HOTELS HEALTH PUMP OTHERS TOTAL SELF EMPLOYED BUSINESS PRIVATE SECTOR PROFESSIONAL GOVT. These two purpose dominate the credit card usage in all categories. Whereas on the other hand the figures of the professionals and business class people show that they have credit limit above 15.e. This is so because banks generally issues credit cards to those professionals and business people who are well established. depending on the salary of the person the credit is granted.

Income group of 15000 to 20000 mostly use the credit card for shopping and fuel. In all the categories these people dominate the credit card usage. This is so because they have higher capacity to repay the credit and also they have higher credit limit. 15000 RS. 10000 3 4 1 7 3 18 RS. . 20000 ABOVE 43 21 16 43 16 139 20000 The respondents having income of above 20000 are the highest user of the credit card. 15000 23 9 4 19 6 61 RS.CONSUMER SPENDING BEHAVIOUR ACCORDING INCOME TRAVEL PETROL & SHOPPING HOTELS HEALTH PUMP OTHERS TOTAL RS.

40 YEARS 34 11 8 31 12 96 40 . The usage of the people within 25 to 60 years accounts for more than 80% of the card usage.CONSUMER BUYING PATTERN AND AGE OF THE CARD HOLDER TRAVEL PETROL & SHOPPING HOTELS HEALTH PUMP OTHERS TOTAL 18 . who have spend for the domestic needs.25 YEARS 4 2 3 8 3 20 25 . .60 YEARS 25 16 7 25 7 80 ABOVE 60 YEARS 6 5 3 5 3 22 This correlation table shows that people falling in the age group of 25 – 60 are the major user of the credit card holders. This class constitute of those who are settling in the life. In short we can say that this group have higher obligation. Again in this usage pattern the is widely used for shopping and fuel refilling. for education of the children.

000 to 20. Hence banks are more liberal on granting credit limit to age group of 40 – 60 years than to 25 – 40 years of age group. .000.10000 15000 .40 YEARS 40 .AGE * SPD_LIMIT Cross tabulation Count SPD_LIMIT < 5000 5000 .25 YEARS 25 .25000 AGE 18 .000 whereas age group of 40 -60 years have credit limit of above 20. The major reason for this can be the age group of 25 – 40 years is still not yet settle or not as well settled as age group of 40 -60 years.60 YEARS ABOVE 60 YEARS Total 2 0 1 0 3 2 3 2 1 8 4 24 9 7 44 ABOVE 25000 2 16 25 2 45 Total 10 43 37 10 100 The picture which emerges from the above chart is that age group of 25 – 40 years mostly have credit limit of 15.

40 YEARS 40 .25 YEARS 25 .60 YEARS ABOVE 60 YEARS Total 4 13 2 5 24 6 30 24 3 63 ABOVE 30% 0 0 11 2 13 Total 10 43 37 10 100 .20% 20% .30% AGE 18 .AGE * SAVINGS Cross tabulation Count SAVINGS 10% .

Another trend which can be observed is that people in the age group of 40 – 60 years saves more than other age groups. None of the respondents in the age group of 18 – 40 years of age are able to save more than 30%. The reason again might be that they may not be well settled and need to spend extra bit on the necessities. Also this group spends more freely than other age groups. .The above table show the relationship between the age group and the percentage savings of the respondents. This is again obvious as the burden on their shoulder is more than any other. More than 63% of the respondents are saving between 20 to 30 % of their monthly income. The trend is very clear.

the credit card helps them to overcome a temporary cash crisis. Purchases can be made through cards and can be paid from next month’s salary because the limit is 45 days for settling the dues. Lower the savings. Most of the respondents are in the age group 25 – 40 years. Majority of the cardholders belong to the salaried class of the Government and Private Sector. higher is the requirement for the use of cards. (76%) 2. because they are employed and have a good source of income.CHAPTER 7 FINDINGS AND RECOMMENDATIONS Findings of the Study The following are the major findings with regard to the study on the usage pattern of the credit card holders. . 1. Respondents with higher salary utilize the cards to the maximum whereas those with lower salary are more cautious. when their salary is exhausted at the end of the month. (43%) 3. 5. The tendency and need to purchase is more at this age. (51%) 4. Most of the respondents are male cardholders.

bonus points and internet banking etc to meet the needs of the different class of people. Master and visa cards are two of the leading card brands in India. 12. The credit card purchase is not always a rational buy. . The bank has done really good job by attracting the number of customers through personal contacts and advertisements. There is no need for postponement of purchases due to cash shortage. 8. The number of card holders has increased in the recent as it is evident from the rise in the number of members in two years. HDFC provide a lot of additional benefits like phone banking. Credit cards can be used for both personal and business purpose. the number of member establishments accepting credit cards has increased which induces the customer to avail the credit facility and increase their purchasing power. some part of it is also impulse buying. Male respondents feel that there is a definite change in their consumption behaviour. HDFC bank cards are more popular and widely accepted. 10. 11. Salesmen of the banks are the main source of awareness to the cardholders. Credit cardholders with higher income feel that credit cards have changed their consumption pattern.6. In recent years. One of the main reasons for MasterCard’s dominance is its advertising which is appropriately ‘Indianized’. 7. Consumers are catching on the convenience of plastic. 9. On the main reasons for HDFC dominance is its advertising.

. Hence credit cards help the conscious consumers of the largest group of salary class to enhance their purchasing power.It is seen from the finding of the study that credit cards are mostly used by cardholders for purchase.

2. 5. The credit cardholders should plan their economic affairs i.e. The banks must reduce the service charge which is to be paid by the card holders for ticket booking. The methods should be adopted to bring degree of popularization through mass media channels like Television. 1. Radio. marketers vie with each other out to the existing and potential card holders. The card issuers face many difficulties and the credit card service market also suffers from certain bottle necks which can be outlined below. Star Hotels. Customer education is needed for increased awareness.Women should be induced to use credit cards by creating awareness on the benefits derived from them. 3. The Admission fees and renewal fees should be reduced so that it can attract more customers. A shakeout is inevitable in this field of marketing. facility derived and ways to make the best use of the card. and Super Markets etc. petrol fills and certain establishments that charge 2 to 3% on the total price.SUGGESTIONS With the multiplying volumes and the contest for efficiency. 4. New schemes should be introduced to cater to their specific needs. They should always think about the future commitments and arrange funds for in time. they should not buy unnecessary or unwanted things simply because they have credits which does not require immediate payment. The credit card holder should sincerely and honestly repay the balances in time and facilitate the system to work out smoothly. . Airports Centres. Railway Centres.

The present environment needs to be matched by increased awareness about credit cards among retailers and should be fool proof for preventing misuse. Almost 80% of the respondents are in the range of neutral to satisfied level with their credit card service. boost to exports and the increased business travelling and spending in India favour the credit card industry. matching with the pace of development. Credit cards are widely used by respondents for mainly two purposes viz. They are no longer a status symbol as it is only a mode of convenience and integral part of the busy life style of the people. all commercial banks should take necessary steps to provide credit cards to rural people. Credit cards all set to make a definite impact on the buying behaviour of people. the credit card is mostly used by urban people but it is not easily available to rural people. . business development of bank as well as economic development. CHAPTER 8 CONCLUSION The liberalization of the economy. Savings as percentage of monthly income is largely in the 20% to 30%. Majority of the respondents approached were using credit card for the period of 4 – 6 years. MasterCard is the widely preferred card company. Hence. In present days. Fuel and shopping. It leads to increasing the personal income. The interest charged by the credit card agencies is much higher than the normal lending rates by the bankers and it should be reduced. Credit cards are catching up with the middle class despite its late entry in the Indian market. This especially true of some nationalized banks that delay billings due to a lack of adequate informational systems and trained persons. From the analysis of the individual questions we can come to the conclusion that most preferred bank by the credit card holders is HDFC bank followed by ICICI bank.6.The only way banks are going to survive in the credit card business is by improving their overall functioning and infrastructural systems.

Almost 80% of the respondents are in the range of neutral to satisfied level with their credit card service. Majority of the respondents approached were using credit card for the period of 4 – 6 years. This clearly means that there is no explicit relationship between other variables other than occupation and monthly income and spending limit monthly income of the card holders. MasterCard is the widely preferred card company. Credit cards are widely used by respondents for mainly two purposes viz. Also the usage pattern and the occupation of the card holders are correlated as private are more in need of the credit at the end of the month. . Fuel and shopping. Saving as percentage of monthly income is largely in the range of 20 Majority of the null hypothesis has been accepted except relationship between occupation of the cardholder and monthly spending limit and monthly income of the cardholder.From the analysis of the individual questions we can come to the conclusion that most preferred bank by the credit card holders is HDFC bank followed by ICICI bank. Correlation analysis reveals that the correlation exists between spending limit and the gender and also with the income level of the respondents. This is obvious as banks do consider the occupation and the income level of the card holders while granting the spending limit for each card holder.

PP.103. . American Economic www. 179-198 Journals ICFAI journal of service www. C a l e m P S a n d M e s t e r L J ( 1 9 9 5 ) ’ “ C o n s u m e r b e h a v i o r a n d stickiness of credit card interest rates”. Vol. “ c r e d i t c a r d r a t e s a n d c o n s u m e r search”. Journal of political economy.icicibank. Vol 6 no 1 2008 ICFAI journal of service marketing. 400-433 3.RupeeTalk. No. A u s u b e l l ( 1 9 9 1 ) .1 Vol 4 2008 Indian journal of finance April 2009 Websites www. B r i t o D L a n d H a r t l e y p ( 1 9 9 5 ) “ C o n s u m e r r a t i o n a l i t y a n d C r e d i t cards”.com www. www. No. Review of financial Economics Vol.cybercellmumbai.creditbhai. “ T h e f a i l u r e o f c o m p e t i t i o n i n t h e c r e d i t c a r d markets”. B e r l i n M a n d M e s t e r J ( 2 0 0 4 ) .13.50-81 2.BIBLIOGRAPHY 5. 1327-1336 4. pp. Vol 85. American Economic Review.htm www.

Sector . the students of N. Institute of Business Management. The details provided in this questionnaire would be kept confidential and would be used purely for the academic purpose. Do you use credit card? Yes No Name: ______________________________________________ Sex: Male Female Age: < 18 years 18 – 25 years 25 – 40 years 40 – 60 years Above 60 years Occupation: Self Employed Business Private Sector Professional Govt. have undertaken the project to study the usage pattern of credit card holders of Ahmedabad city. R.ANNEXURE Note: We.

Since how long you have been using the credit card? < 2 years 2 – 4 years 4. How much satisfied you are with your existing credit card? Highly satisfied . Which credit card do you use? Visa MasterCard amex OTHERS 2.6 years Above 6 years 5.1. Which is the issuing bank of credit card? SBI HDFC ICICI HSBC Others Specify: _____________________ 4. Which type of credit card do you use? Silver Gold Platinum Others 3.

000 – 15.000 8. What is the spending limit of your credit card? < 5000 .000 – 20.000 10. What is your monthly income? < 10.Satisfied Neutral Dissatisfied Highly dissatisfied 6.20% 20% .000 15.30% Above 30% 9. From where did you have the information about the credit card? Print Media Sales Person Friends Internet Television 7.000 Above 20. What percentage of income do you save monthly? < 10% 10% .

Has credit card brought any changes in your monthly spending? Yes No 11.000 Above 25.000 – 25.000 10.000 15. What are the major purposes for which you use credit card? Shopping Hotels Health Petrol Pump Travel and others HYPOTHESIS OUTPUT FROM SPSS SOFTWARE Custom Tables .5000 – 15.

Output Created Comments Input Data Active Dataset Filter Weight Split File N of Rows in Working Data File Syntax 20-Mar-2010 21:56:30 C:\Users\compaq\Desktop\GRANDP ROJECT.012 .05 INCLUDEMRSETS=YES CATEGORIES=ALLVISIBLE. Resources Processor Time Elapsed Time 0:00:00.016 0:00:00.0] BY GENDER /CATEGORIES VARIABLES=CC_BANK GENDER ORDER=A KEY=VALUE EMPTY=INCLUDE /SIGTEST TYPE=CHISQUARE ALPHA=0.sav DataSet1 <none> <none> <none> 100 CTABLES /VLABELS VARIABLES=CC_BANK GENDER DISPLAY=LABEL /TABLE CC_BANK [COUNT F40.

3.532a . Results are based on nonempty rows and columns in each innermost sub table.GENDER FEMALE Count CC_BANK SBI HDFC ICICI HSBC OTHERS 5 8 3 3 5 MALE Count 17 20 18 13 8 Pearson Chi-Square Tests GENDER CC_BANK Chi-square df Sig.159 4 .


*.OCCUPATION SELF EMPLOYED Count CC_B SBI ANK HDFC ICICI HSBC OTHE RS 4 3 1 6 0 BUSINESS Count 1 2 5 1 5 PRIVATE SECTOR Count 9 15 4 4 5 PROFESSION AL Count 4 4 9 3 1 GOVT. Results are based on nonempty rows and columns in each innermost sub table.011*. SECTOR Count 4 4 2 2 2 Total Count 22 28 21 16 13 Pearson Chi-Square Tests OCCUPATION CC_BANK Chi-square df Sig.a . The Chi-square statistic is significant at the 0.779 16 .05 level. 31.

05 INCLUDEMRSETS=YES CATEGORIES=ALLVISIBLE.031 0:00:00.024 20-Mar-2010 22:01:54 Resources .sav DataSet1 <none> <none> <none> 100 CTABLES /VLABELS VARIABLES=CC_BANK INCOME DISPLAY=LABEL /TABLE CC_BANK [C][COUNT F40. Processor Time Elapsed Time 0:00:00.0] BY INCOME /CATEGORIES VARIABLES=CC_BANK ORDER=A KEY=VALUE EMPTY=INCLUDE /CATEGORIES VARIABLES=INCOME ORDER=A KEY=VALUE EMPTY=INCLUDE TOTAL=YES POSITION=AFTER /SIGTEST TYPE=CHISQUARE ALPHA=0.Notes Output Created Comments Input Data Active Dataset Filter Weight Split File N of Rows in Working Data File Syntax C:\Users\compaq\Desktop\GRANDP ROJECT.

Results are based on nonempty rows and columns in each innermost sub table. 10000 RS.119a . 15000 Count 2 0 5 3 0 RS.INCOME < RS.808 8 . 10000 Count CC_BANK SBI HDFC ICICI HSBC OTHERS 0 0 0 0 0 RS. 15000 RS. 20000 Count 7 6 6 5 3 ABOVE 20000 Count 13 22 10 8 10 Total Count 22 28 21 16 13 Pearson Chi-Square Tests INCOME CC_BANK Chi-square df Sig. 12.

sav DataSet1 <none> <none> <none> 100 CTABLES /VLABELS VARIABLES=CC_BANK SAVINGS DISPLAY=LABEL /TABLE CC_BANK [C][COUNT F40.019 20-Mar-2010 22:03:02 Resources .0] BY SAVINGS /CATEGORIES VARIABLES=CC_BANK ORDER=A KEY=VALUE EMPTY=INCLUDE /CATEGORIES VARIABLES=SAVINGS ORDER=A KEY=VALUE EMPTY=INCLUDE TOTAL=YES POSITION=AFTER /SIGTEST TYPE=CHISQUARE ALPHA=0.Notes Output Created Comments Input Data Active Dataset Filter Weight Split File N of Rows in Working Data File Syntax C:\Users\compaq\Desktop\GRANDP ROJECT.05 INCLUDEMRSETS=YES CATEGORIES=ALLVISIBLE. Processor Time Elapsed Time 0:00:00.016 0:00:00.

20% Count 3 9 4 6 2 20% . .30% ABOVE 30% Count 13 18 16 9 7 Count 6 1 1 1 4 Total Count 22 28 21 16 13 Results are based on nonempty rows and columns in each innermost sub table.696 8 .065a 0 0 0 0 0 10% .SAVINGS < 10% Count CC_BANK SBI HDFC ICICI HSBC OTHERS Pearson Chi-Square Tests SAVINGS CC_BANK Chi-square df Sig. 14.

016 0:00:00.05 INCLUDEMRSETS=YES CATEGORIES=ALLVISIBLE.Notes Output Created Comments Input Data Active Dataset Filter Weight Split File N of Rows in Working Data File Syntax C:\Users\compaq\Desktop\GRANDP ROJECT.sav DataSet1 <none> <none> <none> 100 CTABLES /VLABELS VARIABLES=CHANGE GENDER DISPLAY=LABEL /TABLE CHANGE [COUNT F40.0] BY GENDER /CATEGORIES VARIABLES=CHANGE ORDER=A KEY=VALUE EMPTY=INCLUDE /CATEGORIES VARIABLES=GENDER ORDER=A KEY=VALUE EMPTY=INCLUDE TOTAL=YES POSITION=AFTER /SIGTEST TYPE=CHISQUARE ALPHA=0. Processor Time Elapsed Time 0:00:00.015 20-Mar-2010 22:04:24 Resources .

770 1 . 3.GENDER FEMALE Count CHANGE YES NO 11 13 MALE Count 19 57 Total Count 30 70 Pearson Chi-Square Tests GENDER CHANGE Chi-square df Sig. Results are based on nonempty rows and columns in each innermost sub table.052 .


10000 RS.10000 15000 .INCOME < RS. 20000 Count 1 6 18 2 ABOVE 20000 Count 1 1 20 41 Total Count 3 8 44 45 . 15000 RS.25000 ABOVE 25000 0 0 0 0 RS. 15000 Count 1 1 6 2 RS. 10000 Count SPD_LIMIT < 5000 5000 .

05 level. The Chi-square statistic is significant at the 0.000*.alb Results are based on nonempty rows and columns in each innermost sub table.sav DataSet1 <none> <none> <none> 100 20-Mar-2010 22:10:26 .0] BY AGE /CATEGORIES VARIABLES=PURPOSE1 C:\Users\compaq\Desktop\GRANDP ROJECT. Notes Output Created Comments Input Data Active Dataset Filter Weight Split File N of Rows in Working Data File Syntax CTABLES /VLABELS VARIABLES=PURPOSE1 AGE DISPLAY=LABEL /TABLE PURPOSE1 [COUNT F40.Pearson Chi-Square Tests INCOME SPD_LIMIT Chi-square df Sig.609 6 . *. 33.

966 12 .AGE Pearson Chi-Square Tests AGE PURPOSE1 Chi-square df Sig.b . 10.532a.

0] BY INCOME /CATEGORIES VARIABLES=PURPOSE1 ORDER=A KEY=VALUE EMPTY=INCLUDE /CATEGORIES VARIABLES=INCOME ORDER=A KEY=VALUE EMPTY=INCLUDE TOTAL=YES POSITION=AFTER /SIGTEST TYPE=CHISQUARE ALPHA=0.031 0:00:00.sav DataSet1 <none> <none> <none> 100 CTABLES /VLABELS VARIABLES=PURPOSE1 INCOME DISPLAY=LABEL /TABLE PURPOSE1 [COUNT F40.031 20-Mar-2010 22:12:04 Resources . Processor Time Elapsed Time 0:00:00.Notes Output Created Comments Input Data Active Dataset Filter Weight Split File N of Rows in Working Data File Syntax C:\Users\compaq\Desktop\GRANDP ROJECT.05 INCLUDEMRSETS=YES CATEGORIES=ALLVISIBLE.

10000 RS.Table 1 INCOME RS. 15000 RS. 15000 Count PURPOSE1 SHOPPING HOTELS HEALTH PETROL PUMP TRAVEL & OTHERS 1 3 0 5 1 RS. 20000 Count 9 8 2 6 2 ABOVE 20000 Count 16 8 2 35 2 Total Count 26 19 4 46 5 .

b Results are based on nonempty rows and columns in each innermost sub table.239 8 .Pearson Chi-Square Tests INCOME PURPOSE1 Chi-square df Sig. Notes Output Created Comments Input Data Active Dataset Filter Weight Split File N of Rows in Working Data File Syntax C:\Users\compaq\Desktop\GRANDP ROJECT.141a. 12.sav DataSet1 <none> <none> <none> 100 CTABLES /VLABELS VARIABLES=CC_DURA OCCUPATION DISPLAY=LABEL 20-Mar-2010 22:13:39 .

28.004*. The Chi-square statistic is significant at the 0.789 12 .OCCUPATION SELF EMPLOYED Count CC_D < 2 URA YEARS 2-4 YEARS 4-6 YEARS ABOVE 6 YEARS 2 5 7 0 BUSINESS Count 0 1 10 3 PRIVATE SECTOR Count 0 14 22 1 PROFESSIONA L Count 0 3 12 6 GOVT. *. SECTOR Count 0 3 8 3 Total Count 2 26 59 13 Pearson Chi-Square Tests OCCUPATIO N CC_DUR Chi-square A df Sig.a.05 level.b Results are based on nonempty rows and columns in each innermost subtable. .