India caught in credit crunch

NEW DELHI - Three weeks ago, Geetanjali Bahl opened her monthly credit-card statement to find a letter tersely announcing that her credit limit had been slashed by more than half - to just a little over $500.

Bahl, 35, a public-relations professional, is on maternity leave. She said she felt insulted because the letter gave no reason for the cut.

"What can I possibly do with this small amount? This is worth almost nothing," she said angrily. "I am pregnant. You never know when you may need to rush to the hospital."

Bahl belongs to the first generation of credit-card users in India, where spending power soared in the booming economy of the last decade and plastic money encouraged young middle-class people to defy the Hindi adage about living within one's means: "Don't stretch your feet beyond your sheet." But now, squeezed for credit in the sagging global economy, Indian banks have reined in lending, slowing the credit-driven consumption craze for the first time.

In the last 10 years, Bahl said, she bought jewelry, a washing machine, and a stereo system with her credit card, adding that it had also proved a lifeline when she traveled abroad.

"Now, suddenly I feel, 'Oh, God, I can't spend freely.' I feel poor," she said, sipping water in her air-conditioned, two-story suburban house. "I don't have the power to swipe and spend anymore."

"There has been a stress on people's ability to pay their balances on credit cards. They say, 'Give me two to three months to stabilize my finances,' " Sandeep Bhalla, head of Citibank India's credit-card division, said in a recent telephone interview.

Bhalla said his bank has worked out payment plans to help customers experiencing difficulties, adding that the main victims of the global financial turmoil appeared to be small-business owners and young people employed in India's technology and outsourcing industry.

"We have noticed a spending decline," he said. "The use of credit cards in retail spending and buying airline tickets has seen the most decline in the past nine months. We've also noticed a decline in spending on dining out."

One of the fastest-growing credit-card markets in the world, India has more than 25 million card users, particularly among those 35 or younger - a group that makes up more than two-thirds of the country's 1.1 billion people. It is not uncommon to see multiple credit cards tucked into wallets, alongside cards for dining discounts, airline privileges, and club memberships.

From 2006 to 2007, the industry grew 30 percent, Bhalla said, but it has since pulled back. "With the economic slowdown, the growth rate has moderated," he said.

One reason for the sudden caution is an Indian Cards Council report that nonpayment on credit cards had risen to 20 percent between April 2008 and March 2009, compared with a rate of 6 percent the previous year.