Outstanding Credit Card Growth Slows As Banks Recalibrate Strategy

As banks recalibrate their credit card portfolio strategy to cope with the rise in bad debts, outstanding credit card loan growth has slowed in the system.

The total number of cards in force stood at 10.81 crore as of December's end, up 10.4% yearoveryear, the Reserve Bank of India data showed. This growth figure was 21% last year. Total outstanding credit cards were 9.79 crore at the end of December 2023.

In November 2023, RBI had introduced higher risk weights for retail unsecured loans extended by banks and non-bank finance companies.

"Credit card portfolio is currently facing challenges on two fronts. First, slippages in this segment have increased through Q3 and banks must allocate higher capital to these loans due to RBI's increase in risk weights," Asutosh K Mishra, head of research - institutional equity at Ashika Stock Broking Ltd, said.

In terms of the number of outstanding credit cards, HDFC Bank retained its top spot in December, growing at over 16% year on year to 2.31 crore. This was followed by the State Bank of India's outstanding credit cards growing nearly 10% on the year to 2.02 crore. ICICI Bank and Axis Bank both saw outstanding cards rise 9%.

While net new card additions increased on a month-on-month basis, indicating an improvement in sentiment, the overall view remains cautious due to rising delinquencies as well as RBI's risk weight norms, IDBI Capital said in a report.

This fall has come as lenders have been witnessing slower loan growth in these segments and higher delinquencies.

RBL Bank reported elevated slippages during the December quarter, as its credit card book saw customers defaulting.

In the case of Axis Bank, for example, retail slippages accounted for Rs 4,923 crore of the bank's gross slippages as against Rs 4,073 crore reported during the second quarter.

In December, net new cards rose over twofold on the month to 8.2 lakh but it fell by 57% on the year. This rise was largely led by large players like HDFC Bank, State Bank of India and ICICI Bank.

This also reiterates a slowdown in consumption, with monthly credit card spending growing at over 13% in December, lower than 30% a year ago. In November, this figure was at 5.4%.

On a monthly basis, credit card spending grew by 11% in December as against 16% in November.

"We expect card spends to remain range bound in the coming months. However, net new card additions are expected to moderate in the short term due to rising delinquencies in the credit card receivables," the brokerage said.