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ICICI Bank cuts credit card limit, but spares Satyam employees

ICICI Bank cuts credit card limit, but spares Satyam employees
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First Published: Tue, Jan 13 2009. 09 52 PM IST
Updated: Tue, Jan 13 2009. 09 52 PM IST
Mumbai: Many of them have put out their resumes and the company has declared that it may not have the money to pay their salaries, but some employees at Satyam Computer Services Ltd may finally have something to cheer: ICICI Bank Ltd, India’s largest private sector lender, which has reduced the credit limit for its 8.5 million credit card customers, has spared them.
An ICICI Bank executive said the exception was made at the request of the human resource department of the software firm. An uncertain future awaits the around 53,000 staff of Satyam after its former chairman, B. Ramalinga Raju, confessed to a Rs7,136 crore corporate fraud last week.
Mint couldn’t immediately ascertain the number of Satyam employees who hold ICICI Bank credit cards.
ICICI Bank’s move to review credit limits for all its customers was a consequence of the economic slowdown and the credit crunch, and likely aimed at reducing the possible risk of defaults.
There are around 27 million cards in the country. ICICI Bank is the market leader with 8.5 million cards, followed by HDFC Bank Ltd with 4.4 million, Citibank with 3.8 million and State Bank of India with three million cards.
“We have reviewed the credit card limits for all our customers over the past few weeks,” said a senior ICICI Bank executive, who spoke on condition of anonymity. “Just two days back, it was done for Satyam employees. However, we got a request from the Satyam human resource department to reinstate the existing limits as the company is going through a difficult time and the employees need the cash flow.”
The executive added that the bank agreed to reinstate the credit limit for Satyam staff as it has “a long-term business relationship with the company”.
An executive at a foreign bank, who did not want to be identified, said that ICICI Bank holds the salary accounts of Satyam employees, but this couldn’t be independently verified by Mint.
Banks have begun monitoring their credit card accounts closely. Outstandings on credit cards are unsecured loans, or loans against which there is no collateral. This means a customer default translates into a bad debt on the banks’ books.
The credit limit is decided on the basis of a customer’s credit history. For ICICI Bank, the credit limit was almost 2.5-3 times an individual’s monthly salary, sometimes more—this has now been reduced to 1.5-2 times the salary. Thus, a person with a monthly salary of Rs40,000 and who once enjoyed a credit limit of Rs1-1.5 lakh, will now see this shrinking to Rs60,000-80,000.
Other banks, too, said they were working to lower the risk of defaults.
A Standard Chartered Bank spokesperson refused comment on the issue.
However, an official from Standard Chartered Bank, who did not want to be identified, said: “It depends on the risk perception of individual banks. We have frozen the personal credit cards of Satyam employees. We don’t want to add to the risk profile.”
A Citibank spokesperson declined to comment “on client matters”.
“We are taking steps to reduce the risk on our books. The current economic environment is tough, particularly in the consumer banking space,” a Citibank official said.
A senior executive at HDFC Bank said it had “taken steps to ensure that we do not add any new risk to our books”.
The credit card market is facing tough times, with an increase in default rates. To arrest rising defaults and consolidate their credit card books, banks have been reducing the credit-free period on cards and increasing the interest rate on credit revolved.
The interest rate on credit card debt has increased to 3.4% a month from 3.14%.
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First Published: Tue, Jan 13 2009. 09 52 PM IST