Citibank NA, the third largest credit card issuer with 3.8 million cards, has an interest rate band of 1.49-3.5%, based on the customer’s credit history. It has also tightened its business sourcing, and is marketing its cards only to bank customers.
SBI Cards and Payment Services Pvt. Ltd, a joint venture between State Bank of India and GE Money, has hiked the interest rate from 2.6-3.1% to 3.35%.
A senior executive at a payment company, who does not want to named as he is not authorized to speak to the media, said banks have stopped soliciting business from the open market.
While the rejection rate of new applications continues to be in the range of 30-35%, banks are not growing their credit card base aggressively, particularly in the basic card segment, the executive added.
A senior executive of ICICI Bank, India’s largest private sector lender, said the bank has “developed credit scores for customers based on Cibil data and the customers affordability index”. The affordability index is arrived at after assessing the loans the customer has taken from various financial institutions. This helps banks gauge the customers repayment capacity.
Cibil is a credit information bureau that collates the credit history of individuals and assigns so-called credit scores, which banks use before they sanction a loan/credit card to a customer.
“As per the contract signed between the bank and the customer, if the credit score of the customer falls below a particular level, the bank reserves the right to reduce the credit limit,” the ICICI Bank executive, who did not want to be identified, said.
“If a customer was to apply for a card today, his credit limit would be 30% lower than what it would have been if it was sanctioned one year ago. This is called account management. We will focus on consolidating our card portfolio and account management,” said the bank executive.
According to the payment company official, banks have started reducing cash limits available on cards even though the overall credit limit of a customer remains the same.
“They are reducing the cash limit as customers that hold multiple cards use the cash available on the card to pay their monthly dues,” he said. “This in the long run will increase the debt burden on the card holder and the chances of default rises.”
Rising defaults have also forced banks to revise their eligibility criteria upwards. The entry level annual income for new customers of basic cards, like blue and silver, has been hiked from Rs60,000 to Rs1.5 lakh. For gold cards, it has been raised from Rs1.5 lakh to Rs2 lakh. The credit limit of a gold card customer is higher than the basic cards.
Diwakar Gupta, chief executive officer, SBI Cards, said: “We have revised the income threshold limit like the other players in the industry. Earlier, it was around Rs1.5 lakh. It has now been increased to Rs2 lakh. We have also hiked the interest rate on credit cards for those customers who revolve credit need to 3.5% from 1 October.”
SBI Cards’ NPAs on a credit base that has remained flat at 3 million have been in the range of 15-20% since December 2007; the bank is now focusing on recovery, in addition to launching new products.