Credit Card Limit Increase in India: Hidden Risks Every Cardholder Should Know
By Priya Sharma, Certified Financial Planner
Reviewed by Dr. Rajesh Kumar, Former RBI Executive Director
Understanding Credit Limit Increases
In India’s rapidly growing credit card market, banks frequently offer credit limit increases to reliable customers. According to RBI data, credit cards outstanding in India crossed ₹2.17 lakh crore in December 2023, showing a significant % year-over-year growth of 30%.
“Modern Indians are turning to credit cards by using UPI and having easier access to credit. However, limit increases need careful consideration,” advises Shri Amit Kumar, Chief Credit Officer at one of India’s leading private banks.
Impact on Spending Habits
Research Insights
A 2023 TransUnion CIBIL study revealed that for every ₹1 lakh increase in credit limit, Indian consumers typically increase their spending by ₹45,000 within six months.
Real Indian Consumer Experiences
Case Study 1: Rahul Mehta, 35, IT Professional, Bangalore
- Initial limit: ₹2 lakh
- Increased to: ₹5 lakh
- Result: Accumulated ₹3 lakh debt through online shopping and travel
Case Study 2: Priya Desai, 28, Marketing Manager, Mumbai
- Initial limit: ₹1.5 lakh
- Increased to: ₹4 lakh
- Success story: Used increase only for emergencies, maintained 20% utilization
Case Study 3:Arun Kumar, 42, Business Owner, Delhi
- Initial limit: ₹3 lakh
- Increased to: ₹8 lakh
- Challenge: Business expenses led to high utilization during Covid-19
Debt Trap Risks
Understanding Indian Credit Card Interest Rates
As per RBI guidelines (2024), credit card interest rates in India range from 24% to 48% per annum. Leading banks charge:
- HDFC Bank: 24.0% – 42.0% p.a.
- SBI Card: 24.0% – 44.4% p.a.
- ICICI Bank: 24.0% – 42.0% p.a.
EMI Calculator Example
For a ₹1 lakh balance at 36% p.a.- Minimum payment (5% of balance): ₹5,000
- Time to pay off with minimum payments: 20 years
- Total interest paid: ₹4.2 lakhs approximately
CIBIL Score Implications
Credit Utilization Impact
According to CIBIL: Ideal credit utilization is below 30%
- Impact on CIBIL score:
- 0-30% utilization: Positive impact
- 31-50% utilization: Moderate negative impact
- Above 50%: Significant negative impact
“The success of future loan applications depends on your good CIBIL score within India particularly for home loans. High credit card utilization can severely impact this score,”* states Ms. Deepa Shah, Credit Expert at TransUnion CIBIL.
Protection Strategies
Expert Recommendations
Dr. Sanjay Gupta, Professor of Finance at IIM Ahmedabad, suggests:
1. Calculate Required Limit
Safe Credit Limit = (Monthly Income × 3) – Existing EMIs
2. Set Personal Boundaries
- Keep credit utilization under 30%
- Maintain an emergency fund of 6 months
- Daily financial transactions should be carried out using UPI.
3. Emergency Fund Guidelines
Recommended savings based on profession:
- Salaried: 6 months of expenses
- Self-employed: 12 months of expenses
- Freelancers: 15 months of expenses
Resources and Support
Credit Counselling Services
- RBI’s Credit Counselling Centres: Available in all major cities
- SIDBI’s Credit Advisory Centre: For small business owners
- Bank-specific credit counseling services
Consumer Protection
Under RBI’s Credit Card Operations of Banks guidelines:
- Mandatory SMS/email alerts for transactions
- Option to disable international transactions
- Right to reject limit increases
- Zero liability on fraudulent transactions
Frequently Asked Questions
Q: How often do Indian banks increase credit limits?
A: “Most Indian banks review credit limits every 6-12 months based on spending patterns and repayment history,” explains Mr. Rajesh Sinha, Head of Cards at a leading private bank.
Q: What’s a good credit limit in India?
A: Financial experts recommend a total credit limit not exceeding 3 times your monthly income.
Bottom Line
In India’s growing digital economy, credit cards offer convenience but require disciplined usage. Before accepting limit increases, consider your income stability, spending patterns, and existing debt obligations.
About the Author: Priya Sharma is a Certified Financial Planner with 12 years of experience in banking and credit counseling. She is a regular contributor to leading financial publications and conducts financial literacy workshops across India.*
Sources: Reserve Bank of India, TransUnion CIBIL, Indian Banks’ Association, Leading Indian Banks’ Credit Card Terms.