If you have a start-up, work for a finance company, airline or a small-time realtor, you may not get a credit card. The banking sector is Summarily rejecting credit card applications from such quarters as the deteriorating financial health and economic downturn leads to less creditworthiness.
"The credit card applications of several employees of my company, including myself, have been rejected. Last month, different banks turned down credit card requests," said an employee of a major New Delhi-based finance company, requesting anonymity.
The Indian arm of HSBC recently tightened its credit approval mechanism for employees of real estate and non-bank finance companies (NBFCs). "HSBC regularly monitors and reviews the policies governing its lending business and the risk factors related to its various products, as a matter of routine," the bank said in an e-mailed response.
The UK-based bank is not alone. State-run and private banks are also making their credit criteria more stringent by expanding the negative list of applicant profiles who are denied credit. A large Mumbai-based public sector bank has stopped extending credit to small entrepreneurs, while a private bank has made the scrutiny of applications from airlines and call centers more rigorous.
Until recently, the negative list featured reporters, lawyers, chartered accountants and junior-level police and armed forces personnel. The list is now expanding, although the law prohibits banks from denying credit based on profession. But for a banking sector keen on protecting itself from rising bad debts and increasing job losses in a slowing economy, this law may be difficult to follow.
Banks do not cite an applicant's profession as the reason for denying credit, although many bankers privately admit that a negative list of professions and companies exists. "We have been strictly advised not to entertain the application of selected companies, especially for home loans and credit cards,” said an official at one of India's largest state-run banks on grounds of anonymity.
The new negative list includes real estate companies having exposure to NBFCs and some poorly-performing consumer goods companies, the official added. Another state-run bank official, who did not wish to be identified, said his bank was denying credit to small shop-keepers and employees of companies that suffered erosion in market capitalisation and revenues.
The finance sector employees are being denied credit because of the sector's exposure to a volatile stock market. The airline workers are losing out on credit due to job cuts, while shop-owners are a victim of fears that their income could be hit by the economic downturn. "We need to undertake our own due diligence to decide the creditworthiness of a borrower and the definition keeps changing from time to time," according to a state-run bank official.
Source : Economic Times