Scapia, the travel tech credit card start-up, has recently reduced credit limits for a significant number of its customers. Federal Bank, the banking platform backing Scapia, responded by stating that credit limits are determined by various factors, and revisions are part of their periodic reviews.
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"The bank notified these customers whose limit was revised through email and SMS as per our regular practice," the Federal Bank said in a statement.
Earlier, multiple Scapia card users took to social media platforms, including X, expressing their concerns over the sudden decision.
Some users reported substantial decreases, with limits dropping from ₹8 lakh to ₹20,000.
Contrary to some users' beliefs, the Federal Bank clarified that these revisions were not permanent and would continue to happen dynamically, reflecting both increases and decreases, in line with standard industry practices.
Industry experts weighed in, emphasising that credit limits are determined by the banking partners rather than fintechs.
The Reserve Bank of India (RBI) recently mandated a 25% increase in risk weights concerning consumer credit exposure of commercial banks, contributing to the ongoing changes in credit limits across the industry.
Deepak Shenoy, founder of Capitalmind, noted, "With 150% risk weight and people not using the otherwise free card, it's just a strain on capital. It's a fallout of the RBI change in risk weights plus perhaps the startup wasn't able to get enough usage compared to the kind of limits given out."
Shenoy added that the credit card limits are not merely for show, emphasising that users who don't utilise their cards may see limits reduced or cards cancelled.
With this, Shenoy means that when credit card companies, like Scapia, assign a high-risk weight to their cards (like the 150% mentioned), and people don't use these cards much, it puts a strain on the company's financial resources.
Scapia, a credit card partner of Federal Bank, sees it's non-card-using customers credit limits slashed to as little as 20k, and the bank did it. Obviously because, with 150% risk weight and people not using the otherwise free card, it's just a strain on capital. It's a fallout…
— Deepak Shenoy (@deepakshenoy) January 14, 2024
The comment implies that this reduction in credit limits could be a result of changes in regulations by the RBI and also because Scapia might not have seen enough usage of its cards compared to the high limits it offered.
To understand, risk weight refers to the proportion of capital that a financial institution is required to hold in relation to the risk associated with its assets.
In the context of credit cards, the risk weight would reflect the perceived risk associated with the credit extended to cardholders.
Scapia, founded in 2023, offers a co-branded credit card and an app allowing customers to convert daily expenses into rewards.
These rewards, known as Scapia coins, can be used to book hotels and flights online. The co-branded card comes with key features, including zero joining and annual fees, zero-forex markup, and unlimited domestic lounge access for users meeting minimum monthly expenditure requirements.
(Edited by : Amrita)
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