Credit card limit management: Analysing bank approaches in light of increasing defaults

Admist rising defaults on credit card repayments, banks have started lowering their limits. Reasons include credit card dues, credit utilisation ratio, drastic limit increase, and more.

lower credit card limits

All credit cards come with a specified limit. The primary consideration when deciding these limits is your ability to repay the borrowed amount within the specified time period. If you don’t meet certain conditions or if your bank loses confidence in your financial capabilities, they may lower your credit card limit. In addition, banks can suddenly lower your limit. Several SBI credit card customers were baffled when they found their limits suddenly lowered in July 2023. Other banks did the same. Although such large-scale limit reductions are rare, their frequency has increased following the COVID-19 pandemic.


  • There have been rising defaults on credit cards with a total of Rs. 4072 crores outstanding in March 2023.

  • Banks have access to all cardholders’ information from the Credit Information Bureau of India (CIBIL). 

  • Your CIBIL score is used to determine your creditworthiness. The closer your score is to 900, the better your creditworthiness.

  • A default with one bank not only lowers your CIBIL score, but is seen as a risk factor by other banks as well. 

Also Read: Debit card vs. credit card: Which one is better?

Why do banks reduce credit card limits?

There could be several reasons for a lowered credit card limit:

  1. Credit card dues: Defaulting on payments not only results in a higher interest rate and additional fees but also negatively affects your CIBIL score.

  1. Credit utilisation ratio: The credit utilisation ratio represents the ratio of the credit limit you're using to your total credit limit. A lower ratio tells the bank that you are a responsible spender. Inversely, a ratio of more than 70% increases your chances of getting your limit lowered. 

  1. Drastic credit limit increase: When you suddenly acquire multiple credit cards, it leads to a significant increase in your credit limit. In order to balance this out, banks often consider reducing your credit card limits. 

  1. Increasing delinquencies and unstable economic conditions: At times, your credit card limit reduction might be beyond your influence. In the post-COVID era, banks such as SBI (with a 60% limit reduction) and Axis (affecting 200,000 customers) decreased limits regardless of individual behavior. This was prompted by a rise in credit card defaults to 2.94% in July, prompting SBI and other banks to make limit adjustments.

Also Read: A guide to tackling your credit card debt

The takeaway

Your credit card limit can be reduced due to various reasons, not all of which are under your control. If this happens to you, you can contact your bank to understand the reasons and negotiate with them to reinstate your credit limit. 

Click here for the latest articles on credit cards.


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