Private Banks reducing credit limit on credit cards

Again some of the banks are reducing the credit/cash limits on credit cards. The cardholders have come to know about this when some of the cardholders’ payments did not go through after swiping the card. So before swiping the credit card check your balance.

However some of the banks have informed their card-holders about the downward revision, but many of them came to know when their payments transactions did not get through.

Ms Benna, an Andhra Pradesh Government employee, told Business Line, “My credit limit was brought down to Rs 59,000 from Rs 80,000 while cash drawing facility was totally withdrawn by HSBC Bank.”

She said there has been no ‘provocation' from her side for reducing the limit as from the last one year she has been paying all the payments on time. The card-holders of other private banks such as ICICI Bank and HDFC Bank have told that their banks have also reduced the limits.

When enquired, ICICI Bank official told, “ICICI Bank follows prudent credit line management practices and as a result assesses the credit limits of its customers on an on-going basis. This can result in an increase or a decrease of credit line or cash lines. Our efforts on consolidation of our portfolio are seeing good results.”

While HDFC Bank official said that no general reduction has been done in limits. He added, “If it has happened, it may be due to some changes in customer profiles. We are actually bullish on the card segment.”

According to bankers the reduction in limits has been done due to two reasons. A senior official of a private bank pointed out, “The most immediate reason could be an intention to reduce exposure to unsecured portfolio on some early trends that could be disturbing.”

The other reason is less usage of card has forced banks to reduce the limit. A senior official of a foreign bank said, “We also reduce limits if a card is not fully used or mostly inactive.” For banks larger unused limit has been an issue for the banks, as technically card-holder can use it at any time. He explained that a higher limit that has unused for long time is to be kept as a reserve fund with no earnings.

According to experts, the reduction in limits done by banks generally, points towards the situation of credit card portfolios. an economist with SBI said, “Most of the banks have reduced their card exposures significantly during the last 12 months. The current reduction of limits shows their intention to reduce unsecured credit exposure.”

As per RBI figures in 2009 the total number of cards had shrink to about 21 million cards.