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Major banks are cutting down on reward points, cashback and other benefits such as exotic vacations for small costs that are used to lure users to enrol for credit cards, The Economic Times has reported, indicating that they will be relatively tight-fisted with such allurements during the festive season. The reason, according to the report is that banks are trying to be less generous at a time when they are working hard to garner deposits at higher interest rates.

There are several examples from some of the biggest names in the banking industry. The HDFC Diners Club Privilege Card has dropped its double reward points that were given for weekend dining and vouchers of Rs 1,000 on spends of Rs 40,000 spent per month. But the sharpest cut has taken place in the lounge access. It has been slashed from a dozen to a mere two across the world.

Axis Bank, too, has tightened its freebies. Its Magnus card has not only raised its annual fee but also stopped reward points of 25,000 on expenditure of Rs 1 lakh. This was considered a major attraction for the users. Users of this cards also now get fewer reward points that can be converted into air miles. What earlier offered four air miles for every five reward points has now been halved to two air miles for every five reward points.

The largest lender in the country and the bank with the fattest bottom line State Bank is not to be left behind. SBI Cash Back Card has slashed by 50% the quantum of cashback per month to Rs 5,000. Moreover, it has altogether stopped free domestic lounge access to customers.

Analysts interpret these moves as an attempt to tighten their belts.
“They have built a customer base probably with offers that were too good, but now there is some pressure on banks’ profitability. One way to look at it is banks are consolidating their customer base, but there has been no real impact on either card issuances or spends so far,” said Karhtik Srinivasan, group head, financial sector ratings of ICRA.

“There have been changes because we felt that some customers were not using the benefits fully and others were showing some abnormal behaviour in spending. These changes will help us deal with the abnormal behaviour and also boost profitability for our business,” said Sanjeev Moghe, head of cards & payments at Axis Bank.

S K Vaidyanathan, CFO of the largest private bank in the country, HDFC Bank, thought the changes banks have made to their credit card freebies could result in increasing usage. “This is a dynamic segment so things cannot remain static. They are always tuned up and down to encourage usage and deepen relationships,” he said.

HDFC Bank is the market leader in credit card expenditure with more than 25% of the total card spends in India.
“These changes reflect the changing market scenario. Inflation has been increasing, prices have risen and that impacts the value of reward points offered by banks,” explained Asutosh Mishra, who is the head of institutional equities at Ashika Stock Broking.