Spend and loan growth of credit cards slowed as lenders are cautious on asset quality: Nomura

Growth in credit card spending across the system has dropped to about 13 per cent year-on-year (y-o-y) in August 2024, down from 19 per cent in July 2024.

The Reserve Bank of India (RBI) credit card data for August 2024, has also highlighted a continued slowdown in both the number of cards issued and overall spending on credit cards. This moderation is evident in the year-to-date (YTD) growth for FY25, which stands at 17 per cent compared to the previous fiscal year's 28 per cent growth.

The report noted that the upcoming festive season may bring a temporary boost in spending, but it is unlikely to be significant due to last year's strong base and cautious lending practices by issuers. The number of new credit cards added to the system has been consistently below 1 million for five months in a row, with just 0.9 million net cards added in August 2024.

This marks a noticeable drop in the growth of outstanding cards, which fell to 16 per cent y-o-y in August compared to 19 per cent in FY24.

The trend is visible across most major lenders, who are holding back on issuing new cards as they consolidate in response to concerns over worsening asset quality. Spending per credit card has also seen a slowdown, with average monthly spends per card around Rs 16,000 in August 2024, reflecting a 2 per cent y-o-y drop.

For the fiscal year to date (April-August 2024), the annualized spend per card stood at Rs 1.87 lakh, a marginal increase of 1 per cent compared to a 7 per cent rise in FY24 and 27 per cent in FY23.

This slower growth is due to the base effect, as high-value purchases related to travel and hospitality, which surged post-pandemic, are already reflected in past data.

The decline in credit card additions and spending is also affecting loan growth. With slower spends, the growth of loans linked to credit cards is also decelerating, as reflected in the Q1 FY25 financial results of several lenders.

This trend is expected to continue into the second quarter of FY25 and beyond, with a further slowdown in credit card-related loan growth anticipated.

Lenders are also reducing the rewards offered on credit cards. Data from FY24 annual reports indicate that the provision for credit card reward points, as a percentage of spending, has decreased for most lenders compared to FY23. This aligns with the overall growth moderation, as issuers focus more on profitability than on aggressive growth.

Another concern is the worsening asset quality in credit card portfolios. Bureau data shows that the percentage of accounts overdue by 90 days or more (90+ days past due) rose further in Q1 FY25, although this does not account for write-offs. (ANI)