Spending : Credit card spending and loan growth are under pressure as lenders remain wary about asset quality issues, according to a research by global financial services giant Nomura.
Credit card expenditure growth throughout the system has slowed to approximately 13% year on year (y-o-y) in August 2024, down from 19% in July.
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number of cards issued and overall credit card spending
RBI credit card figures for August 2024 also showed a persistent decline in both the number of cards issued and overall credit card spending. This slowdown is reflected in FY25’s year-to-date (YTD) increase of 17%, compared to the previous fiscal year’s 28% growth.
The survey highlighted that while the upcoming holiday season may provide a short lift in spending, it is unlikely to be considerable given to last year’s solid base and issuers’ conservative lending standards. For the past five months, the amount of new credit cards introduced to the system has regularly been less than one million, with only 0.9 million net cards acquired in August 2024.
This indicates a considerable reduction in outstanding card growth, which fell to 16% year on year in August from 19% in FY24.
The trend is seen across most major lenders, who are hesitant to issue new cards as they consolidate in response to concerns about declining asset quality. Spending per credit card has also slowed, with average monthly spending per card around Rs 16,000 in August 2024, representing a 2% year-on-year reduction.
The annualized spend per card for the fiscal year to date (April-August 2024) was Rs 1.87 lakh, a 1% increase compared to a 7% rise in FY24 and 27% in FY23.
This slower growth is attributable to the base operation, as purchases of high value connected to travel and hospitality, which increased following the pandemic, have already been reflected in previous data.
Credit card additions and spending are declining, which is impacting loan growth. As spending slows, so does the rise of credit card borrowing, as evidenced by various lenders’ Q1 FY25 financial figures.
This trend is required to continue throughout the second quarter of fiscal year 25 and beyond, with credit card-related loan growth slowing further.
Lenders are also cutting credit card perks. According to data from FY24 annual reports, most lenders’ provisions for credit card reward points as a percentage of spending have fallen from FY23. This is consistent with the overall growth deceleration, as issuers focus on profitability rather than aggressive growth.
Another source of concern is declining the value of assets in credit card networks. According to bureau data, the percentage of accounts 90 days or more past due increased further in Q1 FY25, excluding write-offs.
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