The number of applicants may look small, but in a country where credit card penetration is low, Nabil Bank was pretty happy with the response.[break]
“It´s our desire to increase the number of credit card users in the country and the scheme provided us the platform to do just that,” Niraj Sharma, card department chief of Nabil Bank, told Republica.
Nabil has so far issued around 15,000 credit cards. This compares with around 200,000 debit cards issued by the bank. The ratio of credit to debit cardholders is similar at other leading domestic banks.
Nepal Investment Bank, which has issued around 486,000 debit cards, has only 1,500 credit cardholders, while Himalayan Bank has around 12,000 credit cardholders, as against around 150,000 debit card users.
“Many banks are aware of disparity in issuance of credit to debit cards. But they are doing nothing to change that situation because of issues like late payment and defaults that plagues credit card business,” Rajan Amatya, deputy general manager of Nepal Investment Bank, told Republica. He confessed that his own bank is not aggressively promoting use of credit cards “because many customers do not make timely payment.”
Similar, complaints were made by officials of Nabil and Himalayan banks.
“We don´t have a system, like the social security number in the US, to check the credibility of applicants and verify the information provided by them. Lack of such infrastructure also cripples our ability to track the cardholders who default if they change locations,” Sharma said.
That´s why banks are wary about issuing credit cards, particularly, to people who live in rented apartments. “We won´t be able to establish contact with the cardholder if he or she quits job and moves somewhere else. And since no collateral is pledged while issuing cards, we become helpless,” Sharma explained.
Despite these constraints, banks say the number of credit card users is increasing with the rise in the number of white-collar workers, especially in the Kathmandu Valley. And along with it credit card transaction is also on the rise.
Credit card transaction stood at Rs 53.9 million in the first seven months of the current fiscal year to February 11, as against Rs 21.5 million recorded in the same period last year, statistics of Nepal Rastra Bank show.
Credit card transactions are gradually picking up in the country as many prudent cardholders are now using the facility of grace period extended by banks to make purchases even when they don´t have cash, bankers said.
Banks don´t slap extra charges for a period of up to 40 days if the card is used to purchase goods or services. But in case the card is used to withdraw cash, an annual interest rate of up to 30 percent and service charge of up to Rs 250 per transaction are levied.
“Despite the high interest on cash withdrawal through credit card, many don´t hesitate to do so. Some even max out on their credit limits. Most of such clients are highly likely to default on the loan,” a banker told Republica on condition of anonymity.
Banks currently set credit limit based on regular monthly income of an applicant. “We provide credit limit of up to 1.5 times the regular monthly income of an applicant,” Nabil´s Sharma said.
Although regular income source is must for obtaining a credit card, banks take into account other factors as well.
“Type of work the person does and number of dependents are some of the other determining factors,” Sharma said, adding, “We also look at whether the applicant has a permanent residency in Kathmandu.”
Many applicants get rejected because they fail to meet the last criteria, said Sharma. To make it easier for the people living in rented apartments get credit cards, the government needs to distribute national identity cards with unique identification number to all citizens and create a database of every citizen incorporating details on health and legal information to taxation and financial transactions, Sharma added.
The government, around three years ago, had endorsed a policy to distribute a biometric smart card to all Nepalis and use it for a number of purposes like during the elections. Following this National ID Management Center, under the Ministry of Home Affairs, was set up in July 2011.
Although the center last October had set a target of distributing identity cards within next five years, not much progress has been made so far.
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