Credit card growth experiencing a slowdown, as borrowers struggle to pay back loans

The Indian credit card industry is struggling to grow, as new issues slow down on a year-on-year (YoY) basis. Not only has the growth i.e. issuance of new credit cards slowed down, but lenders are also becoming increasingly cautious of the asset qualities, a recent report by Nomura showed.

From 19% in July 2024, the growth in the credit card spendings came down to 13% in August 2024. The year-to-date (YTD) growth has also significantly declined in FY25, currently standing at 17%, markedly down from 28% in FY24. For the fifth consecutive month, the number of new credit cards added to the system remained well below the 1-million, or 10 lakh mark. Around 9.2 lakh credit cards were added during the month, a slight uptick from the 7.55 lakh cards that came into the system In July 2024.

However, there is growth in this space nevertheless, with about 10.55 crore active credit cards at present, marking a 15.6% YoY increase. Even the annualised spend per card, or the average amount spent via an annual card during an year grew 1% YoY to Rs 1.87 lakh. But this was far less than the 7% growth annual spends via one credit card saw in FY24.

Meanwhile, what continues to burgeon consistently is the outstanding amount on these credit cards, which ballooned to Rs 2.7 lakh crore in June 2024, up from Rs 2.6 lakh crore in March 2024, and around Rs 2 lakh crore in the year ago period. To put this in perspective, pre-pandemic, the total outstanding amount stood at Rs 87,686 crore, which marks a 24% CAGR in this amount, in just a span of 5 years.

Large drops, slowdown to sustain

Even the monthly expenditure per card dropped 2% YoY to Rs 16,000 in August, 2024. Subsequently, the transaction volume via credit cards also dipped to 1.6% in August, along with the total amount of credit card spending, which fell to Rs 1.69 lakh crore in August, from Rs 1.73 lakh crore in July.

Also, there has been a hefty cutdown in provisions made for credit card reward points, which reflects in the quantum of credit card benefits that have been mowed out by companies of late, making credit cards far less lucrative than before.

HDFC takes lead

During August 2024, HDFC bank added a total of 2.41 lakh credit cards, taking its total tally of active credit cards to 2.19 crore. ICICI Bank came a second distant, adding 1.45 lakh credit cards during the month, which means that the second-largest credit card issuer now holds over 1.75 crore active credit cards.

Axis Bank and SBI Cards also added 1.27 lakh and 1.1 lakh cards, respectively to their repertoire during the month, while the growth numbers at Kotak Mahindra Bank remained largely flat, stagnating the bank's total card tally at 54.13 lakh. This was due to the ongoing ban on the bank due to its weak IT infrastructural issues imposed by RBI in April 2024. If anything, the bank's number of credit cards declined by 61,191 during the month.

Even as the festive season approaches, experts think that it is unlikely to make a major dent in credit card spendings, which are expected to see a further slowdown in the quarters to come.