What is the Profits Earned by Banks on Cash Advances Lending on Credit Cards in India ?

In the Previous Article, we have already discussed about the Cash Advances Market in India on various Metrics. Today we’d like to Highlight the Profits Indian Banks Make from the Cash Advances Segment of Credit Card [CC] Lending.

As already seen, the Cash Advanced on CC was Rs 1,259 Cr spread across 21.90 Lakh Transactions in FY 2011-12. Every Bank levies two types of fees on Cash Advances – 1] Transaction fees which is Rs 300 or 2.5% of the Amount Withdrawn, whichever is Higher and 2] Interest Rate from the Day when Cash has been withdrawn – 3% per month or more

The following Screenshots show the Cash Advance Transaction fees and APR on the same for two of India’s Largest Credit Card Issuers – HDFC Cards and SBI Cards
HDFC Credit Cards Cash Advance Charges

SBI GE Credit Cards Cash Advance Charges

From the above two screen-shots from respective banks websites it is clearly evident that Rs 300 / Transaction fees and 3% Per Month Interest are conservative and applies across the Credit Cards industry in India. For the purpose of calculations, we assume the average period of borrowing to be just 30 days. Thus Indian Consumer Paid a whopping Rs 657.19 Mn / Rs 65.71 Cr as fees and Rs 377.87 Mn or Rs 37.78 Cr as Interest on the Cash Advance in FY 2011-12.

So Indian banks collectively earned a minimum revenue of Rs 103.5 Cr in 12 Months by lending Rs 104.965 Cr over 12 months [It is the Average Monthly Outstanding, i.e Outstanding for 30 Days] in the Cash Advances segment.

The following Tables Shows the Data.

Month No. Trans Rs Mn Fees INR Interest Rs Mn
Apr-11 171978 963.72 51593400 28.9116
May-11 177189 1002.07 53156700 30.0621
Jun-11 172625 960.36 51787500 28.8108
Jul-11 172970 967.22 51891000 29.0166
Aug-11 180047 1088.49 54014100 32.6547
Sep-11 178119 1003.55 53435700 30.1065
Oct-11 185542 1078 55662600 32.34
Nov-11 176818 1047.44 53045400 31.4232
Dec-11 184298 1108.52 55289400 33.2556
Jan-12 188208 1089.36 56462400 32.6808
Feb-12 200762 1078.42 60228600 32.3526
Mar-12 202106 1208.71 60631800 36.2613
2190662 12595.86 657198600 377.8758

We have had many readers asking us to upload the spreadsheet used in calculation so that they can manipulate the data on various other parameters. For your convenience, the same is uploaded here [XLS File]. In the next Article we will specifically do a case study on HDFC, SBI and Citi Cards earnings from Cash Advances segment.

Customized Data: Total Spending of Cards by means of Cash / Purchases, Monthly Bankwise Data is available for consumers research.

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