Friday, April 24, 2009

Slowdown affecting incomes? Banks rejig credit card limit.Leverage should be given in favour of the Consumer, too.

Slowdown affecting incomes? Banks rejig credit card limit
25 Apr 2009, 0753 hrs IST, Prabhakar Sinha, TNN
NEW DELHI: S Sinha, a customer of ICICI Bank, was shocked on Friday when he received an SMS from the bank which said, "Dear customer, effective
April 23, 2009, the cash limit on your ICICI Bank Credit Card No XXXX is Rs 0 and the total credit limit is Rs 19,000.'' His earlier cash withdrawal limit was Rs 19,000 and total credit limit was Rs 60,000. This happened despite the South Delhi-based credit card holder never defaulted on payments. On Friday, many of the ICICI Bank customers received similar messages. In fact, most of the private and foreign banks are lowering credit limits, including cash limits on cards as economic slowdown is affecting incomes of cardholders , following steps like salary cuts and layoffs being taken by many companies to tackle the downturn. Others banks like HDFC Bank, Axis Bank, Citibank, Deutsche Bank, Standard Chartered Bank, HSBC Bank have also reduced credit limits of their customers , which also include cash limits. ICICI Bank executive director V Vaidyanathan said cash limits have been tweaked on the basis of creditworthiness of cardholders. In some cases the limits have also been enhanced for customers having good repayment records, he added. A senior official of a foreign bank said due to global liquidity crunch, they are forced to cut exposure to credit given to card, where default rate is as high as 15% against below 5% in the normal banking business. Banks can access to information about all cardholders from Credit Information Bureau of India Ltd (CIBIL). After a recent ruling, all the banks are required to submit the data about their credit card holders to the credit information bureau. To contain default rates, banks are keeping a close watch on the creditworthiness of a customer in the light of total credit taken on various cards and changing the limits accordingly. At present, there are 25 million credit card holders in the country. Total outstanding on the credit card, according to one estimate is around Rs 25,000 crore. A senior banker said that default rate on card business is not alarmingly high in India as in US, where total outstanding of card business is around $2 trillion.

The above is the text appearing in todays ET which says that due to slow down in current recession period the incomes of the persons have shown a declining / down ward trend and the Banks have now started reducing the Credit Limits and Cash Withdrawal Limits on the credit cards. No doubt the Banks in their own interest to reduce the gap of declining NIM (Net Interest Margin) and in order to safegaurd their asset portfolio have resorted to the above measures as a tool. Is it not true that the Banks have raised their charges on the credit card by way of Fees/ Interest etc? This has also resulted in the financial liquidity crunch of the consumer.
" Every one has the right to safeguard their own interest, similarly the customers, too, have the right to safeguard their interest ".
It is in this backdrop that the Bonafide customer who have been regular in repayments and have never been a defaulter should be informed about the lowering of the credit / cash limits and the limita should not be abruptly lowered and difference balance amount should not be demanded in one instalment. In one of the Bank the credit limits of the customers was abruptly reduced from existing Rs. 1.50 Lac / Rs. 1.00 lacs to Rs. 25000/- and entire Balance outstanding on the credit card was demanded in one lot putting all the customers in jeopardy and embarrassing position. When on the one hand we are expressing that Slow down has effected the incomes of the consumers, would it not make the consumer more uncomfortable. In the above case the it would be prudent on the Bank to have demanded the balance o/s amount in easy instalments.
Since the default rated on credit cards in India is not high Banks should utilise their wisdom in favour of the consumers.