By - Paisafatafat Blog
As the world comes into the grips of the COVID-19 pandemic and its fatalistic blow on the global economic scenario, India too is seeing unprecedented measures being adopted by financial institutions at their desperate attempts to stay afloat.
Although the Government of India has beefed up its endeavors to move state-run banks to augment lending and has also asked them to submit reports on the details and volumes of sanctioned loans daily, at least a few of them are making sharp cuts on credit card as well as personal loan limits.
The reluctance comes at a time and as an indirect consequence of the plunge that the Indian economy took as a result of the ongoing forty-day lockdown to contain the spread of the coronavirus outbreak. This has put millions of jobs at stake and hence despite the thrusts by the Reserve Bank of India, many senior level banking sector executives have stated that lenders are loath to give free rein to the lending amounts just yet.
The mounting fears of higher default rates amid job risks, slashed pay checks and jeopardized businesses are causing several lending bodies to become reluctant in shelling out credit and loans without restraint.
Some senior banking officials, who wish to remain unidentified for not being officially authorized to make statements on these matters said, banks are in dire need of more and more guarantees from the government in order for them to commence full-fledged lending. The same executives who want to stay anonymous mentioned that this state of affairs has surfaced at a time when the banking system in India is already staggering under almost $140 billion in bad debt.
Small and medium sized businesses will bear the maximum brunt of this step adopted by lenders as the loan limits they are eligible for are getting considerably reduced. Hence, if you are planning to fall back on credit to take you through these times of crises, it is going to be a hard feat as banks are taking bold steps to slash credit card and personal loan limits by several notches.
Internal sources revealed that banking institutions such as Axis Bank, which holds a 12.6% market share in the total number of credit cards issued as well as a 10.7% share in the total credit card spending, has reevaluated and brought down the credit limit of almost 200,000 customers, since mid- April. This ranges from 30-90% reduction in credit limits for this group.
Several Axis Bank customers have even corroborated these facts when spoken to. Some customers went on to give actual figures mentioning that their credit limit was brought down to Rs. 50,000 from 5,00,000 and to Rs. 1.7 lakh from Rs. 7 lakh. On conditions of anonymity they also said that upon enquiring with their banks, they were shrugged off with ineptitudes.
Another customer of Kotak Mahindra Bank also rued about his credit card limits that have been hacked to Rs. 44,000 from Rs. 75,000. Again, the reason given to him was vague and without consequence.
When contacts were made with Kotak Mahindra Bank with regards to these steps adopted by them, a senior official attempted to clarify that this was not something out of the ordinary or as a measure of sustainability in the current situation, but simply a regular drill carried out to scrutinize the “credit worthiness and card spend behavior of credit card holders”.
The figures issued by the RBI however, do confirm the fact that the credit card outstanding amount has peaked at its highest- Rs. 1.1 lakh crore by the end of February, which is almost 26% above what it was last year.