Banks trim credit card benefits

Credit card issuers are reducing the benefits available to customers.

While certain card issuers are withdrawing the basic cash withdrawal facility, or lowering them, others are curtailing the reward programme to keep a check on unsecured loans.

While Barclaycard, the card arm of the Barclays group, has informed some of the credit card holders that the cash limit has been reduced to zero “to help manage the credit situation”. The new entrant to the cards business in India has sent text messages to card holders informing them about the change. A customer care executive said that the limit has been lowered for all card holders.

Similarly, HSBC has lowered the credit limit, including the amount of cash a card holder can withdraw, by over 50 per cent for some of its customers, while ICICI Bank, the largest credit card issuer in India, is expected to announce similar moves in the coming weeks.

In addition, ICICI Bank and HDFC Bank are also curtailing the rewards programme. ICICI Bank has already informed its customers through monthly statements about the withdrawal of certain benefits, HDFC Bank has mentioned in its monthly statement that the MyRewards programme will be updated from next month. ICICI Bank said that the Xpress Rewards Programme has been withdrawn for all credit card holders, while the basic rewards programme continues.

Most banks did not respond to questionaires e-mailed on Saturday.

The measures from the credit card issuers come at a time when banks are reworking their strategy on unsecured loans such as credit cards and personal loans, segments which have seen a steep rise in delinquency levels.

“By reducing the credit and cash limits, the banks want to ensure that their exposure to unsecured loans is kept at a minimum and the risk of rising defaults is mitigated. As the chances of job losses increase, the customers are likely to go for aggressive spending on credit cards going forward. This raises the chances of higher non-performing assets (NPAs) in the banks’ loan books, which urged the credit-card issuers to lower the credit limits,” said Deepak Agrawal, banking analyst at Brics Securities.

An analyst added that banks may also look at reducing the interest-free period available on credit cards in the coming days.

During the last 12 months credit card delinquency has more than doubled to over 10 per cent, according to estimates available with banks. The other worrying aspect is the high degree of rollover which is reflected by a rise of 86 per cent for the year up to August.

The credit-card base in India is estimated at around 27 million, of which ICICI Bank has over 9 million credit card holders.

According to the latest Reserve Bank of India data, the total credit card outstanding at the end of August was estimated at Rs 29,000 crore, an increase of around Rs 13,500 crore over the corresponding period last year.