Banks cutting on credit limit can misuse of credit card

In the past few years India has become the fast growing credit card market in the world. It has almost touched the $30 million mark. This was possible due to availability of cheap and easy availability of credit which also helped in the boom of the economy. As Indian adopted the new concept of purchasing with credit card and left behind their generations – old cautiousness before spending.

Right from the purchase of consumer goods, cars to property, for everything Indians used credit card. Moreover owning a credit card was considered as status symbol besides convenience.

Even the banks offered credit cards to any and everybody, but now seeing the increase in the default in payments of credit cards they are getting strict about granting credit and about non-payment.

Banks and financial institutions have started tightening by canceling the cards of the cardholders who have not fully paid their previous dues. Earlier banks were very liberal used to charge penalty in case of default in payments. But now the non-defaulters also have to feel the crunch as ICICI bank has cut down the cash limits for all its credit card users. As banks are facing liquidity crunch and there has been rise in defaults, approximately delinquency levels is at 15 per cent of an issuer’s portfolio therefore the institutions have started holding back. Banks are hardly issuing new cards and customers are being carefully scrutinized for their ability to pay and pay on time.

But many credit card holders are finding difficulty as they have got used to this piece of plastic. Most of them used card for almost everything whether buying a plasma television, a spanking new cell phone or even a holiday on a whim and on easy installments had become a lifestyle. Many times these goods and services were unaffordable and unnecessary but the option to pay in easy installments was too attractive that card holder could not resist. But many of the card holders did not know or did not want to know that the interest rate on such installments was almost usurious and they would end up paying a lot more than they had bargained for. On the other hand for banks such customers are very important and gave them ever higher credit limits.

America is facing credit card addiction. But in India the situation is still under control. The banks tightening norms for issuing credit card and cutting down credit limits can prove to be blessing in disguise to control the misuse of easy credit.

Banks to bear cost of ATM transactions, to go slow on issuing of debt-cum-ATM cards

After the implementation of the Reserve Bank of India directions for the free use of any ATMs for cash withdrawal from April 1 the banks have decided to go slow on the issuing of debit-cum-ATM cards.

As per information provided by top officials of different banks, a bank will have to pay anything between Rs 12 and Rs 18 for every transaction carried out at another bank’s ATM by its customer. An anonymous head of a public sector bank informed Business Line that, “This will mean a big hit on the banks as they cannot be passed on to the customers now. Even abroad, free transactions across ATMs are not offered for the same reason. I don’t see any reason for RBI’s rush to implement this from April 1”.

The big banks like SBI and large private banks might not find difficulty as they will have lesser outgo, but smaller banks having fewer ATMs might find difficult to bear the cost of ‘foreign’ ATM transactions by their customers.

Therefore some of the banks have searched a way out they will be cautious regarding the number of new cards to be issued. The official informed, “We are planning to discontinue giving ATM-debit cards to students and other categories that open loan accounts to cut costs”.

As per sources, most of the banks are yet to work out a mechanism to offer free ATM usage even after two weeks of implementation of the facility as per RBI directives.

Still the ATMs of many private sector banks — ICICI Bank, HDFC and Axis Bank, among some others are continuing to refuse transaction requests from customers of other banks, although they are denying it officially. A senior official of Axis Bank informed over phone from Mumbai that, “From day one, we are accepting all cards at all ATMs”.

The banks are even going to be cautious regarding the expansion of ATM network as the costs may work against this. Head of ATM operations at a large private sector bank informed, “A decision will depend on the cost of transactions at another bank’s ATMs vis-À-vis the cost of setting up new ATMs. Banks with large number of ATMs or very small number of ATMs may rethink their plans”.

Currently the cost of setting up of new ATM amounts to about Rs 8 lakh for installation and Rs 60,000-80,000 towards monthly maintenance expenses. It is expected that this might go up depending on rentals or real estate prices going up.