MUMBAI: The recent increase in delinquencies in credit card receivables is prompting Indian banks to adopt a more cautious approach to expanding their credit card subscriber base.
With the Reserve Bank of India (RBI) intensifying its scrutiny of high-risk, unsecured lending, banks are beginning to exercise restraint, especially during what is typically a peak period for new issuances.
According to recent RBI data, the addition of new credit cards dropped sharply to 620,000 in September 2024 from 920,000 in August 2024 – a decline of nearly a third month-on-month.
Sharp drop
In comparison to the previous year, new card issuances have decreased by more than 64 per cent, marking a significant shift in the credit card market.
Analysts attribute this slowdown to banks’ increasing concerns about the rising delinquencies within the unsecured segment.
A credit card loan is categorised as unsecured because it does not require collateral, making it more vulnerable to defaults when economic conditions weaken or interest rates climb.
Many banks have responded to the rising risk by slowing down their issuance of new cards, preferring instead to focus on more secure lending products.
HDFC Bank and SBI Cards
IDBI Capital analyst Bunty Chawla noted that HDFC Bank and SBI Cards, traditionally among the most aggressive players in this space, have also tempered their growth strategies, particularly with new RBI guidelines impacting riskier loans.
The RBI recently imposed stricter risk-weight norms on unsecured credit products to ensure that banks maintain adequate capital reserves against possible defaults.
For banks, this means a closer assessment of the potential risk involved with new credit card customers and a greater focus on their existing customer base.
In addition, banks are increasingly likely to seek creditworthy customers, using rigorous screening to prevent defaults from escalating further.
Volatile spending patterns
Several other factors are adding to the current restraint in the credit card market. With consumer spending patterns becoming more volatile due to inflationary pressures, banks are wary of extending credit without robust due diligence.
The potential burden of bad loans could pressure banks’ balance sheets if the trend of defaults continues to rise, especially as many high-interest customers face financial constraints.
Given these challenges, financial institutions are likely to focus on maintaining a healthy credit portfolio, targeting segments that exhibit lower default risk.
Talking to businessbenchmark,news credit card head of a bank said moving forward, there will be continued slowdown in new credit card issuances.
Stricter terms likely
As banks prioritise risk management over rapid expansion in the unsecured credit market, they may introduce stricter terms and conditions for new cardholders or incentivise existing cardholders to maintain responsible credit behavior.
This trend may have broader implications for consumer spending, as fewer consumers have access to new lines of credit during the festive season.
In sum, as banks adapt to the RBI’s regulatory guidance, a shift is evident: sustainable growth with minimized risk will likely replace aggressive expansion in the unsecured credit market for the foreseeable future.
