Customer Credit Limits Slashed by Banks - Who Is Affected?

According to some, all this is happening because they opted for the moratorium option, but others opine that they have been paying their credit card dues on time and thus such problems are not warranted. Some had their credit cards blocked as well. However, even if some are paying their dues on time each month, why are their cards getting blocked? What is happening here?

In this article, let us look at things from the perspective of banks. What are they doing, and why?

Customers are linking these sudden activities with the pandemic, and with the economic problem it is causing to the banking industry. However, banks say that these activities are “regular and ongoing”, that these happen periodically. Banks periodically measure and re-measure the creditworthiness of their existing customers. They take into account the spending behavior of customers, of credit card holders.

Thus, this is not something novel or something to be too alarmed at. Banks do this from time to time. They analyze credit limits, repayment data and spending patterns of customers. Based on this data, the decision to increase or decrease their credit limit is taken on a cast to case basis.

However, it is also true that some of these actions are influenced by the current financial crisis. Because of this situation, banks are forced to review customers based on risk parameters. Economy activity has ceased, and thus all lenders are forced to review their customer’s portfolio. Thus, they are taking immediate action in areas with higher risk.

So who are the customer segments that are higher risk to banks?

Card issuers and banks typically review their customer portfolio regularly. When an economic crisis hits, they cut down risky customers aggressively to save their own business.  Various parameters are checked to check in-stress customers and to identify them.