Credit card spending and loan growth are facing increasing pressure as lenders adopt more cautious practices due to concerns over asset quality, according to a recent report by global financial services firm Nomura.
The report highlights that year-on-year (y-o-y) growth in credit card spending has fallen significantly, dropping to 13% in August 2024 from 19% in July 2024. This marks a notable decline in consumer spending through credit cards and is reflective of broader economic trends.
Data from the Reserve Bank of India (RBI) reinforces these findings, showing a continued slowdown in the number of credit cards issued and overall spending. For the fiscal year to date (YTD) in FY25, growth in credit card spending stands at 17%, a sharp drop from the 28% growth witnessed in the previous fiscal year.
Festive boost unlikely to offset caution
The report indicates that the upcoming festive season, typically a period of increased consumer spending, may provide only a temporary and limited boost. The strong base effect from last year’s high spending and the cautious lending practices adopted by card issuers are likely to restrain any significant growth during this period.
One key indicator of this slowdown is the number of new credit cards being issued. For five consecutive months, the net addition of credit cards has remained below the 1 million mark, with only 0.9 million cards added in August 2024. This represents a noticeable decline in the growth of outstanding cards, which dropped to 16% y-o-y in August, compared to 19% growth seen in FY24.
Major lenders tighten controls
The trend has been observed across most major lending institutions, which are holding back on issuing new cards as they focus on consolidation and managing the risk of deteriorating asset quality. Spending per credit card has also slowed, with average monthly spending per card recorded at Rs 16,000 in August 2024, marking a 2% y-o-y decline.
For the fiscal year to date (April-August 2024), the annualized spend per card reached Rs 1.87 lakh, reflecting a marginal increase of 1%, compared to a 7% rise in FY24 and a 27% surge in FY23. This deceleration can be attributed to the base effect, as high-value transactions related to travel and hospitality, which spiked post-pandemic, are already factored into earlier data.
Loan growth decelerates
The sluggishness in credit card additions and spending has also affected the growth of loans linked to credit cards. The financial results for the first quarter of FY25 from various lenders reveal a slowdown in credit card-related loan growth, a trend that is expected to continue into the second quarter and beyond.
Moreover, the report notes that lenders have been reducing rewards on credit card spending. Data from FY24 annual reports indicate that the provision for credit card reward points, as a percentage of spending, has decreased for most issuers compared to FY23. This shift underscores a broader move by issuers to prioritize profitability over aggressive growth.
Asset quality concerns loom large
Another area of concern is the worsening asset quality within credit card portfolios. Data from credit bureaus reveal that the percentage of accounts overdue by 90 days or more increased further in the first quarter of FY25. Although this data excludes write-offs, it points to a growing challenge for lenders in managing credit risk.
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