July 4, 2005	Monday	Jumadi-ul-Awwal 26, 1426

PLASTIC money may be popular in the west and in many developing economies, but in India – a country with one of the highest individual savings rate of around 25 per cent – banks find it difficult to market credit cards to customers.

Many conservative (and those in the above-35 age-group), Indians are reluctant to use credit cards for their regular expenditure. With interest rates still hovering at record lows, banks have been desperately trying to market credit cards, as the returns from this business are the very lucrative.

International and private Indian banks have been aggressively promoting credit cards, hiring direct sales agents (DSAs) to market these products. Many of the DSAs get hold of mobile phone numbers and keep pestering subscribers, urging them to obtain a credit card.

The explosive growth of the mobile phone business – about 45 million cell phones are in use in India today – has given a boost to the credit card business of banks. Coincidentally, banks here have so far issued about 45 million credit and debit cards, and the business continues to grow exponentially.

Expectedly, even as the credit card portfolio of banks have ballooned there have been growing instances of defaults, with many users unable to fulfil their commitments. Some banks have used strong-arm tactics to recover funds from the cardholders, even hiring musclemen to threaten the defaulters.

A few months ago, a public interest litigation was filed in the Bombay High Court, seeking a stay on such ‘unethical’ methods by banks to recover their money. Worried about the impact of such nasty methods – of both aggressively marketing credit cards, and using toughies to get back their money – the Reserve Bank of India (RBI), the country’s central bank, has decided to crack down on unethical practices.

It has just come out with a series of guidelines that should hopefully cleanse up the business. Banks and their DSAs have been warned that they should not indulge in any “physical or verbal intimidation” or harass cardholders while recovering their dues. Neither can a borrower (especially one who has defaulted) be humiliated publicly, or his/her privacy intruded.

Some agents – outsourced by banks to recover their dues – have been known to have seized vehicles and other assets from the defaulters, humiliating them in front of neighbours and colleagues. The RBI has also made banks responsible for “all acts of omission or commission” by their agents and DSAs.

Pushing for transparency in the credit card business, the RBI requires card-issuers to spell out clearly the interest rates that will be charged, not on a monthly basis (usually between 2.95 and 2.99 per cent), but on an annualised basis. Some banks also levy hefty late charges, though consumers complaint that the bills were despatched late. The RBI now insists that banks should send all statements well in advance, even email the bills to customers.

But the most important measure is the one relating to penalties imposed on banks for issuing unsolicited credit cards. Though it has not emerged as a major problem, some banks have in recent months taken to issuing credit cards, without obtaining the consumer’s consent. RBI has warned banks not to indulge in such ‘illegal’ actions, and those violating the norms would have to pay a stiff penalty.

Banks have also been asked to maintain a ‘do not call registry,’ listing the telephone numbers of consumers who do not want to be pestered by salespeople.

According to Visa International – which assigned the National Council of Applied Economic Research to conduct a survey – the payment cards business has been growing at a brisk clip of 55 per cent annually over the past seven years. MasterCard International, the other leading international card issuing organization, notes that less than 15 per cent Indians use credit cards.

The potential for growth is enormous, but the RBI has decided to set in place a system of checks and balances, to prevent the mushrooming of unethical practices.



RADIO broadcasting, the much-neglected and poorer cousin in the glitzy world of entertainment, has finally got a much-needed push with the Indian government last week allowing 20 per cent foreign direct investment in the sector, and also deciding to allow private FM stations to migrate from the present license-fee structure to a revenue-sharing model.

Jaipal Reddy, one of the most pragmatic and knowledgeable Information & Broadcasting Minister that India has had in recent years, last week unveiled the government’s new policy towards the neglected sector, which was music to the ears of the 21 private FM radio operators, who have been pleading for relief.

In the rush for FM licenses, many enthusiastic though naïve operators committed to pay hefty license fees, not realising that the built-in, 15 per cent annual hike could cripple their business over the years. Successive governments have in recent years ignored the private FM operators’ plea for a change over to a revenue sharing model.

Reddy has now come out with the new policy, which allows existing operators to migrate to the new regime, where they will have to pay four per cent of their revenues as fees to the government. Acknowledging the failure of the initial experiment, the minister also unveiled plans, which could result in a huge growth in the sector.



Bids will soon be invited to start about 330 FM stations in 90 cities across the country. Reddy expects many international majors to tie-up with domestic partners in expanding the FM network in the country. As a growing number of Indians buy automobiles – and drive to work – demand for FM radio has been soaring.

According to industry estimates, advertising revenues have been growing by 15 per cent annually, and are poised for even faster growth. FM radio has come of age in cities like Mumbai and Delhi, and even the advertising on many of these stations is of high quality. But the share of radio in the total advertising budget of about $2 billion, is way below the five per cent mark.

Fortunately, many of the FM operators are subsidiaries of existing media giants. Top media houses, including Bennett Coleman (which publishes the country’s largest English newspaper, the Times of India), Living Media (publishers of India Today, who also run the successful Aaj Tak television network) and Mid-Day, have established successful FM stations.

Thanks to their financial muscle, they have been able to sustain the hefty losses incurred in paying the license fees. The migration to the revenue sharing model would improve bottom-lines, while the decision to allow 20 per cent FDI, is expected to result in injection of additional funding.

The government has, however, decided to stick to its policy of not allowing private FM operators to broadcast news. But many of the radio stations get around this policy, by broadcasting headlines from their respective newspapers and television channels. Reddy has, however, promised to review this policy over the coming days.



Italian auto giant Fiat has had a presence in India for well over half a century, and has invested over Rs20 billion in building up infrastructure. Yet, despite such a significant lead, Fiat has a marginal presence in the buoyant Indian automobile sector.

But before the automobile revolution dawned in India in the 1980s – with the launch of the Suzuki-promoted Maruti 800 – Fiat dominated Indian roads, especially in western India. It had a joint venture with the Walchand Hirachand group (called Premier Automobiles Ltd), which made the popular ‘Padminis.’ However, like the Ambassador cars, manufactured by the Birlas in Calcutta, the Padmini failed to modernise in the post-Maruti era.

Even as other European, American, Japanese and Korean auto majors set up new factories and assembly units in India, Fiat failed to capitalise on its lead, and virtually let go its hold over the market. It was only as late as 1998 that Fiat re-established its presence in India, acquiring the Mumbai plant of Premier Automobiles, and manufacturing its popular Palio model.

Fiat also bought a sprawling campus near Pune, aiming to produce about 75,000 cars, but failed to develop it, as demand for its models did not soar to expected levels. Though the Mumbai plant has a capacity to manufacture 60,000 vehicles, Fiat produces a mere 2,000-odd cars.

Dr Paolo Castagna, who last month took over as managing director of Fiat India, admits that sales have failed to pick up because of a lack of marketing strategy, and good after sales service. He plans to set this right, and rework the company’s strategy in India. But unfortunately, the Italian auto giant is not faring well, and has no plans to inject any further capital into its Indian unit.

There is also serious talk of the Hindujas, the overseas Indian business family, planning to acquire Fiat India. Though both sides have refused to comment on the matter, a deal is expected to be signed shortly.

The Hindujas had a few years ago acquired a stake in Chennai-based Ashok Leyland Ltd, which has a joint venture with Iveco (which is controlled by Fiat SpA). Ashok Leyland manufactures heavy trucks and has a 20 per cent share of the Indian market. The Hindujas are keen to have a presence in the passenger car business as well, just as the Tatas and the Mahindras have.

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