Credit cards yet to be popular

KATHMANDU, JULY 06:

Despite the growing popularity of plastic money, general Nepali people have still not warmed up to the use of credit cards to make purchases.

The number of credit cards issued by banks has actually reduced in the last one year, according to Nepal Rastra Bank (NRB)'s data. By the third quarter of the current fiscal year, commercial banks issued 34,371 credit cards while in the corresponding period in 2012, the number of credit cards issued by banks stood at 39,310.

Likewise, loans floated by banks against credit cards have gone down in the last one year. By the 10th month of the current fiscal year, banks have floated loans worth Rs 400 million against credit cards. The amount stood at Rs 428 million a year ago.

Though the use of credit cards does not seem to be taking off, debit card is slowly replacing cash as a mode of payment in urban areas. Credit card gives the holder an option to borrow money from the bank to make purchases at a point of sale, but at the same time delay in repayment burdens the borrower with hefty interest rate higher than 20 per cent.

"Credit cards are a risky business for banks. A borrower could default on payments and max out on the credit limit, so we are comfortable with a small base of credit card clientèle," said a CEO of a bank, adding that the bank uses excessive screening process before issuing a card just to ward off the wrong kind of customers.A large number of Nepalis are also not excited about obtaining a credit card fearing the liability of paying interest rate and charges levied. Banks only charge interest on purchases if only the card holder fails to repay the amount used for purchase through credit card for more than 30 days or so. However, withdrawing money through credit card is expensive as an interest higher than 25 per cent is charged on the withdrawn amount.

"Moreover, all the banks issue debit cards to their account holders which is relatively risk-free since customers make payments from their own account balance, so we do not feel the need to push for credit cards," the CEO said.

According to the same data, the number of debit cards issued by banks and financial institutions has increased to 3.04 million by the 10th month of the current fiscal year. Statistics show that a little more than one-third of all deposit account holders have used debit cards to make payments. Though some banks seem apprehensive to increase credit card, Nabil Bank has come up with schemes to attract more customers.

"Our bank’s policy encourages credit card issuance that is why we have already exceeded the target set for current year," pointed out manager-Card Operations at Nabil Bank Niraj Sharma. The bank has more than 7000 active credit cards by the end of the third quarter.

Nabil Bank has introduced different schemes such as zero per cent loans to its credit card holders to purchase Samsung Galaxy Grand handsets.

Source: THT