IMGCAP(1)]
Indian banks reportedly are enabling credit cardholders to convert their debts into personal loans to avoid defaults. According to a 19 Aug. report in the Economic Times, the Reserve Bank of India says cardholder rolled over approximately 20% of their card debt for the 12-month period ended 31 May for a total of 120 billion rupees (US$2.7 billion or 1.8 billion euros) in credit card receivables. "The Indian credit card market has a 16% default rate," Prathima Rajan, an India-based analyst with Celent LLC, tells CardLine Global. "This is one of the challenges that banks are currently facing" To combat increasing default rates, Rajan says "banks take alternative measures to collect payments from customers, and one such step is converting larger repayment dues into personal loans." According to Rajan, in India banks charge cardholders an interest rate between 18% and 40% for payment owed after the interest-free period. "This gradually piles up and turns into a default," Rajan says. "To overcome this, banks started converting this amount as a personal loan with an average interest rate of 14% to 16 %." Rajan notes that some banks are being proactive in offering this option when the customers make large purchases instead of waiting until the cardholder goes into default.
