Credit cards get a hostile reception in India
By Heather Timmons Published: July 5, 2007

NEW DELHI: Arigit Sengupta, a hotel manager in Bangalore, swears he will never use a credit card again.

After spending 30,000 rupees, or $740, on his card and paying his minimum balance on time, he said he wound up owing his bank more than three times that amount.

"The kind of interest they charge, not even a chartered accountant could understand," he said.

Local and foreign banks are aggressively peddling credit card accounts in India, with good reason. Indian back offices service the credit card accounts of the rest of the world, creating the industry’s ideal customer base: a fast-growing middle class with disposable income. India, like other emerging markets, is also attractive because consumers in the West are already overloaded with debt.

But winning Indian consumers over to plastic has been more problematic than expected.

After years of hard sales, there are fewer than four active credit cards for every hundred Indian adults, one of the lowest rates in the world. And at a time when foreign banks like Barclays continue to jump into the business, an organized backlash against credit cards is building.

They are drawing vocal and heated criticism from users, consumer advocates and the government, who allege unfair fees, nuisance charges and - oddly enough, for the service capital of the world - miserable customer service.

Newspapers regularly run stories telling consumers how to cancel their cards. Many card holders have unashamedly abandoned their accounts after being levied charges they consider unfair.

"These banks are cheating the public," said C. V. Gidappa, who heads the Credit Card Holders Association of India, a nationwide consumer group. Gidappa’s organization, which estimates that Indian consumers are paying 16.4 million rupees a day in unfair charges, is agitating for a "debt-free India" by 2020.

Rates and fees frustrate credit card users around the world, but Indian consumers have something special to complain about: interest rates average more than 30 percent, and can soar to more than 50 percent, while charges tacked on for late payments are sometimes a whopping 20 percent of the overall balance.

The Indian government’s trade regulator, the Monopolies and Restrictive Trade Practices Commission, or Mrtpc, has begun an inquiry into the card-selling practices of banks including Citigroup, HSBC and the local banks Icici and HDFC. These banks are "indulging in unfair trade practices" that "have an inherent and inevitable effect of causing irreparable loss and injury to the general public," according to a preliminary report from the regulator’s investigative arm.

The commission has the power to fine companies and limit their business dealings. All the banks involved said they had followed all appropriate trade practices and were complying with the agency’s information requests.

The Reserve Bank of India, the central bank, is also concerned. In May, the Reserve Bank sent a letter to all commercial banks warning about "usurious" interest rates on loans and asking them to make sure costs to borrowers were justifiable. The RBI’s ombudsman office said it had received 3,700 complaints from consumers about credit card lenders from January 2006 through May of this year out of 22 million accounts.

Some frustrated users have simply stopped paying their bills. About 1 in 10 credit card accounts in India are "charged off," banks here estimate, or have fallen so far behind that they are never expected to be paid, compared with about 1 in 25 in the United States, according to Standard & Poor’s data.

"My balance never came to an end," said one borrower, V. P. Ullas, a branch manager at a finance company who initially charged some 15,000 rupees in clothes and furniture purchases to his Citigroup credit card. He is refusing to give the bank any more money, he said, after watching his balance climb to 100,000 rupees with fees and charges, and having already paid many times the purchase price.

Ullas said he usually paid his bill promptly, but his interest rate jumped to 55 percent from 24 percent a year.

"I have paid much more than what is due to them," he said. Citigroup said that it could not comment on individual accounts, but that customers who paid their minimum balance on time would not have an escalating balance.

Because India lacks a comprehensive central credit reporting agency like the United States has, the repercussions for borrowers who stop paying bills are unclear. Disputes between banks and borrowers are generally settled out of court.

Many customers - like Sengupta, who is negotiating for a settlement with his bank, Icici - have vowed never to rely on plastic again. "I’ve learned a lesson," he said.

In addition to high fees, customers say that sales agents make false promises about no-fee cards; payments are not recorded; bills do not show up; and problems are not resolved promptly or at all, leading to more fees. Some cardholders who fall behind say they are visited by thuggish collection agents.

Banks lure in customers and then "start squeezing your blood," Gidippa claimed.

CORE, a consumer group with the slogan "Wake up, consumer," gets some 50 to 60 credit card complaints a day.

The industry has real problems, CORE executives said. "We see a disconnect somewhere" between what consumers expect and what they were getting from the card companies, said Smita Singh, manager of brand and media at CORE.

"Changes have to come from the banking industry," she said.

Credit card lenders said they needed to charge high rates and fees in India because of market uncertainties. Besides the lack of a reliable credit bureau to track borrowers’ payment histories, India has no unified identification standard like the U.S. social security number. People move and are untraceable, they said.

"Many of these issues arise because of lack of customer awareness," said Citigroup’s head of cards in India, T. R. Ramachandran. "They are first-time borrowers, they are unfamiliar with carry-forward balances." Customer education, industrywide, "continues to be a challenge," he admitted.