Credit card spends rise 14.5% in October on festive season purchases

Credit card spending reached Rs 2 trillion in October, a 14.5 per cent rise from September, largely driven by festival season purchases.

However, the volume of outstanding credit cards increased only marginally during the same period.

The spike in spending comes at a time when nearly all major credit card issuers are calibrating their growth in the segment due to visible signs of stress.

According to the latest data by the Reserve Bank of India (RBI), credit card spending in October reached Rs 2.02 trillion, up 13 per cent year-on-year (Y-o-Y).

The total number of outstanding credit cards in the system increased 12.85 per cent Y-o-Y to 106.88 million, a 0.74 per cent rise from September.

In October, net credit card additions totalled 786,337, compared to 620,000 in September and 920,000 in August.

“Sequentially, the numbers are higher primarily due to festival season spending,” said Nitin Agarwal, research analyst at Motilal Oswal Securities.

Delinquencies in the segment remain the highest among all credit categories as of June 2024.

In the July–September quarter, most private banks reported significant slippages to non-performing assets from unsecured loans like credit cards.

Issuers have resorted to measures, such as tightening credit score requirements and curtailing spending limits, to reduce defaults in the segment.

Even the RBI, in its November bulletin, attributed the stress in small-ticket advances, credit cards, and personal loans to a rise in over-leveraged clients and increased provisioning.

More broadly, banks have reined in lending to retail and services sectors.

“Most lenders are tightening their underwriting criteria and reviewing credit limits given the stress experienced by many players in the industry.

"We thus remain watchful on new card sourcing run-rates and delinquency trends in the card segment for most lenders under our coverage,” Agarwal said.

The increase in credit cards in October was led by HDFC Bank, the country's largest credit card issuer, which added 241,119 cards.

This was followed by SBI Cards with 220,265 cards, and ICICI Bank issued 138,541 cards.

Axis Bank saw its outstanding cards decrease by 20,573 during this period, according to the data.

According to Saurabh Bhalerao, associate director and head of BFSI Research, the surge in credit card spending can also be broadly ascribed to high-end credit customers.

“In contrast, issuers have generally tightened credit standards and reduced limits.

"Despite the seasonal boost, credit card spending growth for the current financial year is expected to be slower than the high teens growth seen last year,” he said.

In November last year, the RBI had raised concerns about the rapid growth in certain components of consumer credit.

It increased the risk weights for bank lending to consumer credit, including personal loans but excluding housing loans, education loans, vehicle loans, and gold loans, by 25 percentage points to 125 per cent.

This regulatory move led the majority of banks to calibrate growth in their unsecured portfolios.