 "Banks curb credit card issuance as delinquencies rise this festival season")
Concerns over rising delinquencies in credit card receivables are prompting banks to slow down on issuing new credit cards during the festival season.
According to data from the Reserve Bank of India (RBI), the pace of new card issuances dropped significantly from 920,000 in August to 620,000 in September. This is a decline of nearly one-third.
Sharp decline in yearly card issuances
Compared to last year, new credit card issuances have decreased by over 64 per cent, with the total number of active credit cards now reaching 106 million.
Financial experts predict that this trend may persist as banks grow increasingly cautious about the unsecured lending segment, particularly credit cards, according to a report by The Economic Times.
The report quoted Bunty Chawla, an analyst at IDBI Capital, as saying that new card issuances was majorly led by HDFC Bank and SBI Cards.
However, net new card additions are expected to slow down in the near term due to rising delinquencies in credit card receivables, Chawla said. He added that lenders also remain cautious on new card disbursements due to the RBI’s risk weight norms.
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HDFC Bank issued 430,000 new credit cards in September, followed by SBI Cards with 140,000, and Axis Bank with 53,000. ICICI Bank’s credit card additions saw a rise of only 4,000.
Rising default rates
According to Macquarie Capital, default rates in banks' credit card portfolios are reaching nearly 6 per cent, a level that has not been seen in years.
The report quoted Suresh Ganapathy, head of financial services research at Macquarie Capital, as saying that in credit cards, the middle-income category is facing default pressures. This is especially because avenues to refinance debt, like taking personal loans, are dwindling due to RBI’s regulatory actions.
He further said that financial strain on the middle class, combined with a slowdown in urban economic activity, is increasingly visible.
High festival spending
While the growth in transaction volume fell from 1.6 per cent in August to 0.5 per cent in September, overall credit card spending saw an uptick during the festival season.
Total card expenditure rose to Rs 1.77 trillion in September from Rs 1.69 trillion in August.
This indicates a 4.7 per cent month-on-month (M-o-M) increase and a notable 23.8 per cent year-on-year (Y-o-Y) jump.
The RBI has expressed concerns over the unsecured lending segment, urging banks to proceed cautiously with personal loans aimed at consumption. Responding to rising stress in unsecured consumer lending, the RBI raised the risk weights on unsecured credit, including personal loans and bank credit extended to non-banking financial companies (NBFCs), in November 2023, the report said.