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.