The travails of unregulated Customer acquisition

Customers acquisition sans any regulations is a surefire guarantee of future problems. That's exactly what's happened to SBI cards in India.

HT Mint reports that 'an aggressive customer acquisition drive has taken its toll on India’s second largest credit card issuer, SBI Cards and Payment Services Ltd (SBI Cards), with defaults rising to possibly the highest in the industry.

SBI Cards, which has so far issued about 3.5 million credit cards, has posted a net loss of Rs186.61 crore in the quarter ended December 2007, its first since 2003, wiping out a substantial portion of its net worth (equity and reserves). SBI and GE Money pumped in Rs200 crore of capital into the company in the quarter.

What should worry the credit card firm more, however, is its rising non-performing assets (NPAs). As on 31 December 2007, its NPAs stood at 16.28%, possibly the highest among all credit card issuers in India. This means 16.28% of the total outstandings of customers could not be collected by the company.'

SBI Card's travails are a reminder to other financial institutions to adopt a more prudent approach to Customer acquisition.

Comments

s4ur4bh said…
Hi Prof. Ray,

Back with a comment. This time I had to, the company in question is where I spent 14 months of my precious time.

From whatever I saw when I was there, GE Money did NOT make any mistake in issuing the cards. We made sure that policies were very strict and we evaluate all customers on stringent parameters.

And yes its surprising to see GE Money NPA @ 16%. When I was there, till last year we were better than the industry.

Regards,
Saurabh Garg
Prof.Ray Titus said…
Saurabh...I wonder what changed since then? Was it an overzealous drive to acquire customers?

Or misguided targets that got them on an overdrive?

Whatever, the mess is on. Hopefully they can extricate themselves without taking too much of a beating.
Deepali Chandra said…
Hi,
I was reading a book called ‘If God was a Banker’ by Ravi Subramaniyam…. Up to a large extent the current situation can be correlated with the subject of the book. Mainly 4 reasons I can think of for the defaults and NPA-
1- Push strategy of marking without figuring out the actual need and potentially right customer.
2- Too many players adding every month as compared to potential customers.
3- Ethical practices are getting overridden by profit motive to have largest share in the pie.
4- Flexibility and leniency portrait in offering terms and conditions to entice prospects are like doubly edge sword.
Credit cards are one of the most potential products for all most all the commercial banks underlined by risk of default… (From Banks point of view)! Being in banking domain (indirectly) I have never got any expert opinion that supports credit cards; rather personal loan and overdraft facilities are cheap and as effective as credit cards for addressing the need (from customer point of view).
Today it might be SBI facing 16% NPA; same can get worse or replicated by other players, when the product carries almost the same guidelines across the industry while market and consumer are the same…..

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