Aarti Menon did most of the shopping for her sister's marriage through her credit card. At the end of the month she received the monthly statement from her bank. To her shock Aarti realised she had exhausted the credit limit on her card and the outstanding ran close to Rs 100,000.
Unable to pay the minimum amount due from her monthly savings. She utilised another of her credit cards to settle the monthly dues.
Aarti was fortunate this time around but her luck may not run for too long.
The Reserve Bank India's recent draft guidelines have instructed banks to keep a check on the same and come out with a single overall credit limit for an individual.
"As holding several credit cards enhances the total credit available to any consumer, banks/NBFCs may fix maximum credit limit having regard to the means of the customer," said the RBI in its draft guidelines on credit card operations.
"It will be very difficult for banks to gather what is the set credit limit for an individual customer by various banks," said a senior private bank official. Not every customer willing to declare the credit limit sanctioned to him by his bank, he added.
With instances of a credit bubble burst in Asian countries, it has become critical for the central bank to bring about a check, whether it's viable or not that's besides the point.
The regulator is also putting check and balances to ensure card issuing banks do not face bankruptcy unlike banks in South Asian region.
The Korean example proves the maxim that a little knowledge is a dangerous thing. Korea has 3.1 credit cards per bankable population against India's 0.02, said a private sector banker. Korea has 90 million credit cards with $100 billion outstandings, against India's 14 million and $2 billion, he added.
With banks sharing customer data with the Credit Information Bureau of India the criteria to set credit limit on cards would soon be based on the customer's credit history and his earnings.
So if you plan to pay up the credit card outstanding of one bank by withdrawing cash from another credit card beware. The credit bureau is watching you. It could hamper your chances of enhancing the credit limit on your card.
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