Regulatory scrutiny may dampen credit cards' festive season spirit

Pressure on unsecured lending may weigh on growth in spending through credit card

Credit card spending is expected to pick-up on the back of discretionary spending during the festival season, but the growth in spends could be subdued due to the regulatory eye on unsecured lending and rising delinquencies in the credit card segment. 

Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms.

Nitin Aggarwal, head of banking and financial research, Motilal Oswal Institutional Equities, said there is a possibility that the overall environment around unsecured lending may impact credit card spends.

“Yes, that possibility is there as the credit card spending growth this year is lower than previous years. Most card players have tightened their underwriting and have reduced spending limits for customers who are looking vulnerable,” he said, adding that the (credit card) spending growth in FY25 is looking muted as there has been a sharp decline in corporate spends for select large players.

 

 “Retail spending otherwise is still growing at a better run-rate. However, we believe that spending growth over FY25–27 will sustain at Rs 18 per cent,” he said.

The latest data from the Reserve Bank of India (RBI) shows that credit card spends in August 2024 increased 13.51 per cent year-on-year (Y-o-Y) to Rs 1.68 trillion from the year-ago period. However, on a month-on-month basis, it was down 2.3 per cent. In July, spends topped Rs 1.72 trillion.

The largest credit card issuer, HDFC Bank, saw a 2 per cent drop in spends to touch Rs 43,440.85 crore in August, from Rs 44,368.65 crore in July.

SBI Cards’ spends dropped 1.48 per cent to Rs 26,480 crore; ICICI Bank’s spends dropped 5 per cent to Rs 32,542 crore; and Axis Bank’s spends declined 4.47 per cent to Rs 19,589 crore, according to the RBI data.

“Credit card spending is likely to pick up in the upcoming months. However, there are concerns regarding the increasing cases of delinquencies, and certain banks have reduced their credit card limits, leading to a drop in spending,” said Saurabh Bhalerao, associate director, CareEdge Ratings.

Earlier this week, TransUnion CIBIL, in a report, said that balance-level delinquencies in the credit card segment had seen a 17 basis points (bps) year-on-year rise in the quarter ending June 2024 (Q1FY25), while delinquencies in other credit segments, including personal loans, saw a decline even as retail credit growth moderated, consequent to banks tightening the supply of credit to the unsecured segments.

Data showed that the balance-level delinquencies in the credit card segment stood at 1.8 per cent, the highest among all other credit segments.

Balance-level delinquencies are measured in terms of 90 days or more past due. Delinquencies in the credit card segment have been increasing over the past few quarters.

“It should be fine. The preview sales are happening right now, so we’ll have to wait and see,” said a senior banker at a private sector bank, when asked about how the festival season would pan out for credit card spends.

According to Karan Gupta, director and head of financial institutions, India Ratings, credit card issuers have become more cautious given the uptick in delinquencies.

Additionally, credit cards seeing downgrades may also result in a slowdown of transactions, he said.

Meanwhile, the number of outstanding credit cards in August stood at 105.49 million, compared to 104.56 million in July.

In August 2023, outstanding credit cards stood at 91.3 million. The largest credit card issuer, HDFC Bank, had 21.9 million cards in circulation.