We recently examined the long-term effects of Covid-19 on the credit card industry. This article highlights a more immediate consequence: several banks are actively revising customer credit limits in response to the pandemic.
Lenders are cutting card limits to protect themselves from potential non-performing assets (NPAs) that could result from salary reductions and job losses. With the coronavirus situation still unresolved despite extended lockdowns, many issuers are taking a cautious approach.
What’s happening?
- Axis Bank: The Economic Times reports that credit limits for nearly 200,000 Axis Bank customers were reduced effective April 15. Readers of Cardexpert have also reported limit revisions, in some cases as steep as 90%.
- Kotak Mahindra Bank: Kotak has reportedly reduced credit limits for some customers, according to coverage on ET Now.
- SBI Cards: There are online reports suggesting reductions of up to 60% on certain SBI Cards accounts.
In addition, some issuers such as American Express are reportedly holding off on processing credit limit increase requests. This may be due to limited staff capacity, but it also suggests issuers are being more cautious about expanding exposure right now.
What to do?
Monitor your card limits periodically and keep a backup card available in case one of your limits is reduced unexpectedly. Banks may change limits without prior notice, so having alternatives can prevent inconvenience when you need to step out or make essential purchases.
It would be preferable for issuers to notify customers promptly by email or SMS when limits are adjusted so cardholders can plan accordingly.
Bottomline
It is unsurprising that banks would reduce credit limits during periods of economic uncertainty, though cuts approaching 90% seem excessive to many customers. Banks likely rely on extensive data and risk models to justify such moves.
So far these actions appear limited in scale, but if lockdowns continue and economic conditions worsen, we could see broader and more significant reductions across many card portfolios.
There is little cardholders can do when banks decide to lower limits, but it is reasonable to expect issuers to restore limits once the situation improves.
All of my card limits remain unchanged so far. How about yours? Share your experience in the comments below.