Credit Card Borrowing Limits To Be Reduced
Indian credit card issuers have been forced by rising defaults and a lack of Rupee liquidity to reduce borrowing limits of existing customers. Leading card issuing banks such as ICICI Bank, SBI Card, Citibank and HSBC said they will revise the credit limit selectively after assessing the customers’ credit history.
In the past card issuers have granted customers disproportionate spending limits as all of them rushed to capture market share. As time progressed the strategy backfired as an increasing proportion of their unsecured portfolio either began defaulting or was delinquent. As a result the industry is re rating credit risk and reassessing the credit worthiness of their existing borrowers.
In its report, the Business Standard cited an example of an HSBC customer with clean credit history and no outstanding balance seeing their credit limit fall to Rs 12,000 from Rs 65,000. When queried, Dheeraj Dixit, head of credit cards, HSBC India, said: “I am not in a position to discuss any individual customer.”
Revised credit limits was inevitable, bank strategy of obtaining market share at all costs has proven unprofitable with defaults increasing sharply and the Non Performing Assets average in the industry having doubled in the first nine months of the current fiscal year from 7-8 percent a year earlier.
Some banks such as Standard Chartered have actively started pursuing an altogether different strategy, preferring quality rather than quantity. Standard Chartered is no longer actively seeking new customers in the unsecured lending space, preferring to market or make loans to existing internal customers whose credit history’s they are familiar with instead. ICICI Bank also undertook a similar measure recently, ceasing to make two wheeler loans to external customers altogether.
Bankers have said it has become easier to keep track of a person’s liabilities as more financial institutions have started sharing their customers’ financial data with the credit bureau, CIBIL. Citibank even changed its underwriting model recently due to availability of data on individual’s debt.
Credit companies are taking punitive actions after assessing the number of credit cards a customer holds, the existing loan amount and the income disclosed at the time of issuing the credit card. To save defaults, credit limits are being lowered especially for customers who hold multiple cards.
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