"We have seen an increase in non-performing advances," HSBC's head of personal banking Simon Williams told LBO.
"When inflation picks up and expenses go up people find it difficult to meet payments on time.
"
HSBC has tight rules on provisioning of loans which is higher than Sri Lankan requirements.
HSBC officials say its Sri Lanka portfolio defaults are still lower than comparator countries overseas.
The bank has half the credit card based transaction volume though a lesser share of the outstanding loans, James Roberts, who heads operations and risk of its card division, said.
It has also raised the bar to qualify for a credit card from a basic monthly income of 10,000 rupees to 15,000 rupees.
More than seven months into 2007, HSBC has only issued about 35,000 new cards against around 100,000 in 2006, officials said.
The bank has a computer based scoring system to approve new card issues and sophisticated software allowing it to track and chase after delayed payment