KARACHI, Aug 28: Major foreign banks are losing market share in consumer finance because of the high rates of markup charged by them.

Dawn inquiries reveal that top three foreign banks have been in trouble as a local bank has snatched away part of their business by launching a running finance product. This product makes it easier for people already availing credit facility of top three foreign banks to borrow much bigger amounts at cheaper rate.

The ready cash scheme of Union Bank is giving a tough time to (i) Citibank (ii) Standard Chartered and (iii) ABN Amro Bank. The scheme is so designed that Union Bank has to take much lesser pain in examining the credit worthiness of the borrowers—and that makes it easier for it to offer ready cash at around 19 per cent. This itself being a high markup rate is lesser than what the other three banks are charging on their credit cards and other running finance facilities. Inquiries reveal that credit card holders—and those availing other running finance facilities from the top three foreign banks—are clearing their liabilities with these banks by borrowing from Union Bank under ready cash scheme.

Under the scheme people holding credit cards of the top three banks or availing certain running finance facilities can borrow through this scheme a higher amount of money than the limits set by the other three foreign banks. For example, if a person owns a Citibank credit card and meets certain other criteria he can borrow under ready cash scheme twice the limit of Citibank card.

Those having credit cards issued by Standard Chartered or availing of balance transfer facility of ABN Amro Bank can also borrow a higher amount through ready cash scheme than their limits with SC or ABN Amro. The result is that many people are rushing to get ready cash to pay off the major chunk of their liabilities with the top three foreign banks. This does not mean that the volume of business of the top three banks has been on the fall. But this certainly has an impact on their market share which has been on the decline.

CREDIT RISK: Some bankers say the central bank should see if the ready cash scheme meets the requirements of examining the credit worthiness of the borrowers by relying heavily on their relations with other banks rather than securing some direct guarantees. But an official of Union Bank told Dawn that those seeking ready cash are required to sign a legal document that guarantees their credit worthiness. But others say what has made ready cash a popular scheme is the fact that people were using credit cards of major foreign banks at a high markup rate of 30-36 per cent. “Whereas in ready cash scheme they have to pay just 18.96 per cent,” said a Union Bank official. When pointed out that this still is a very high rate under the prevailing low interest rate environment he said consumer finance always involves greater risks and costs so the products need to be priced accordingly.