Saturday, April 25, 2009


Crisil recently came out with a study which said that NPAs(Non Performing Assets ) of banks in India might see 200% growth in next 12-18 months. The delinquency levels across the banking industry is expected to treble as per Crisil. This coupled with continued job losses and depressing economic activity has led to fear among banks of rising defaults among the retail customers. As a result they are looking to restrict their exposure to retail customers especially in the unsecured loan segment like credit cards. ICICI Bank has sent out letters informing its credit card customers about their new limit which is lower than the earlier one. In most cases the cash limit is lowered to 0. This means they cant withdraw cash from their cards while the credit limit will stay at a much lower level. ICICI Bank is not alone in this. 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.
This is done to ensure that the retail customer is not over leveraged in this difficult economic scenario where people are loosing jobs at massive scale. Banks are taking this step to pre empt rising NPAs on their credit card book.
The banks are not going to reduce the limits for every single customer holding their credit card. They will be doing it basis the credit worthiness of the customer. The banks will use the customers track record with them and also his CIBIL score in determining his credit worthiness. In some cases they might also increase the limit if the customer has impeccable credit worthiness. So those of you who have very good credit history with all the financial institutions need not worry. For those whose credit limit is reduced, I think its a blessing in disguise since it will limit the extent of leverage that you can take. Over leveraging is dangerous both for the bank and the customer, hence its a right step.
The moral of the story is that credit is to be used efficiently and diligently. Else banks will be forced to cut the credit supply like they are doing today.

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