MUMBAI: Banks are increasingly allowing borrowers to convert credit card dues into personal loans in a bid to stave off defaults triggered by inflation and rising rates. All leading banks are offering investors an option to pay for purchases in installments. While some are being proactive, others are offering them as part of a restructuring package after classifying the customer as delinquent.

According to the Reserve Bank of India (RBI), credit card transactions amounted to over Rs 60,000 crore between May 2007 and May 2008. RBI data also show that around 20% of card transactions were rolled over, resulting in Rs 12,000 crore of credit card receivables, which are classified as loans by banks. In the previous year, the amount classified as loans was less than 10% of credit card transactions. Rising interest rates and prices are eating into the disposable income of borrowers, increasing the chances of default.

Dues under a credit card after the initial interest-free period attract interest rates of over 18-38%. As against this, personal loans are available at rates starting from 14%. Although this facility of allowing cardholders to pay for purchases in instalments has been available for some time, banks have recently started becoming more proactive. In some cases, banks suggest it as soon as a customer makes a large transaction. Other banks make this offer when a customer fails to make a large payment. At present, SBI Cards offer the EMI scheme on transactions of more than Rs 2,500.

Banks start monitoring customers who have not been consistent with their payments. "We have an idea about customers' pending patterns through the transaction monitoring alert system. If a customer spends an average of Rs 8,000 on his credit card every month and suddenly we witness a transaction of Rs 50,000 billed in his name, we call the customer. We inform the customer that he/she has an option to convert it into EMIs, which could weigh lesser on his pocket," said ICICI Bank head, cards group, Sachin Khandelwal.

Source : http://economictimes.indiatimes.com/