Credit Card Issuances Drop To Below 10 Lakh For The First Time In Nearly A Year

Credit card issuances fell to below the 10-lakh mark for the first time in 10 months due to regulatory changes, according to monthly data from the Reserve Bank of India.

Credit card issuances decreased in April to 7.37 lakh, RBI data showed. This is the first time issuances have declined below the 10-lakh mark since July 2023. In December, these issuances reached a peak of 19.03 lakh credit cards.

Private sector banks that saw a month-on-month fall in issuances include Axis Bank Ltd. (96%), ICICI Bank Ltd. (50.5%), Kotak Mahindra Bank Ltd. (152%), Federal Bank Ltd. (88.1%), South Indian Bank Ltd. (132%), and Yes Bank Ltd. (48.6%).

Some banks, such as HDFC Bank Ltd. and CSB Bank Ltd., reported an increase.

For South Indian Bank and Federal Bank, a possible explanation for the fall in credit card issuances is the RBI's clampdown on the OneCard deal. In March, RBI asked both lenders to re-evaluate their partnerships with fintechs for co-branded credit cards due to data storage concerns.

Amendments to RBI's master directions on co-branded cards are one of the reasons for this drop, according to Ramji Binnani, fintech writer at The Catalyst Analyst.

In November 2023, the RBI increased the credit risk weights on unsecured consumer loans to curb the high growth in unsecured personal loans and credit cards.

As a result, credit card loans by banks now attract a risk weight of 150%, as compared with 125% previously, and those by non-banking financial companies attract a risk weight of 125%, up from the previous 100%.

While this step was expected to slow growth in the credit card segment, an uptick in December was possibly due to banks making necessary adjustments as per the new policy, Binnani said.

Additionally, big banks have become less aggressive on credit cards as their credit-to-deposit ratio—the ratio of a bank's total loans to its total deposits—increased significantly, he said.

"We know that informally, there was a conversation of banks with the regulator to change their strategy. So, several banks reduced aggression on credit cards. While banks like Axis also devalued their cards' rewards, others removed certain categories and put limits on lounge access," Binnani said.

The credit-deposit ratio of banks increased by 38 basis points and stood at 80.3% for the fortnight of March 22, touching a decade high, according to a CareEdge Ratings report dated April 8. The agency also projected the CD ratio to remain elevated at above 81% in fiscal 2025, as credit offtake moderates but remains higher than deposit growth.

While the number of credit card issuances has fallen in April, a spokesperson for BankBazaar said that despite several changes brought in by the RBI, the number of credit cards in circulation continues to rise.

"It will take a few more quarters to fully understand the long-term effects of these directives. However, we broadly expect them to be net positive, as they are strengthening the ecosystem and providing clear guidelines on acceptable practices, with a strong focus on consumer interests," BankBazaar told NDTV Profit in a request for comments.

Anand Dama, senior research analyst at Emkay Global Financial Services, agreed and said that the fall this month may not point to any worrying trend.

"Credit card delinquencies have been up and due to several changes in the ecosystem, the card-in-force numbers were expected to come down in fiscal 2025," he said.

Given the recent regulatory clampdown on Kotak Mahindra Bank, the number of credit card issuances by banks may fall further in the coming months, according to Amit Khurana, head of equity at Dolat Capital.

"There could be a combination of factors contributing to a fall in this number in April. However, to draw a trend, it is better to wait till May and June because the impact of Kotak Mahindra Bank would be indicated in the numbers," he said. "But my bigger concern is if credit cards are losing their attraction," Khurana said.