Barclays Plans Sale of Indian Credit Card Business

The news that Barclays Bank plans to sell its Indian credit card business has apparently created a bidding war with Standard Chartered Bank being currently in the lead.

Some six months after the announcement came from Barclays, the signing of a deal is now finally on the horizon, indeed, it is rumoured to take place within the next couple of weeks. The only other bidder, SBI Card, a joint venture between GE Capital and State Bank of India, is still in the running and nothing is certain as yet.

The sale and offer would, however, only comprise of Barclays’ performing cluster of some 240,000 Indian credit cards. Both private and foreign banks are becoming more aggressive in their pursuit of the credit card market and other unsecured lending. This is surprising in view of the fact the number of credit cards being issued to new account holders is actually declining. Only spending on existing cards is up on previous months and looks set to rise.

Barclays seeks to cut some 3,000 jobs world-wide to reduce operating costs and has already merged client relationship teams of its commercial and investment banking departments to cut costs. Barclays Capital, now consisting of the bank’s investment banking and commercial banking divisions, wishes to concentrate on their large corporate clientele in India, while Barclays as a whole has decided to focus on business from more affluent clients in the retail banking sector.

It appears Barclays has lost its appetite for the credit card market as a whole, a market it once aggressively pursued around the world. Unsecured lending has become a red rag to many UK banks, so it seems.

Reuters reported this week that Barclays seeks to reduce its exposure to unsecured lending in India, not surprising with a book value of approximately 2 billion rupees/26.6 million pounds that is actually shrinking and credit card spending that is rising – and therefore presenting the possibility of defaulting on the loans.

Standard Chartered is a long standing business rival of Barclays. The bidding bank has issued some 1.2 million credit cards to Indian households. In a country with roughly 1.2 billion people, the number of credit card holders is ridiculously small – a mere 18 million people have a credit card in India. However, as India’s economy is emerging from the global crisis in better shape than many of its European counterparts, one can only speculate how many card users there are likely to be in the future.

For the moment, it seems, Indian people have adopted a more sensible approach by sticking to debit cards and some 230 million people use them regularly. In a country of such gigantic geographical size and with tremendous infrastructural differences to overcome, only local Indian banks have the type of branch network needed to truly expand the credit card market.

This has been the greatest challenge for foreign banks so far and is perhaps the underlying reason, why Barclays is selling. Barclays Bank is the issuer of the Visa Black Card in the United States.