Mint Primer: Why are banks issuing fewer credit cards?

How have credit card additions fared?

In October, banks added 0.79 million credit cards, compared with 1.69 million last October. HDFC Bank added the most (0.24 million), followed by State Bank of India, which issues credit cards through subsidiary SBI Card (0.22 million), and ICICI Bank (0.14 million). Some banks even saw a sequential dip in existing cards in October, as cancellations and expiries outpaced fresh additions. Among these were Kotak Mahindra Bank (down 97,940 cards), RBL Bank (down 43,675 cards) and Axis Bank (down 20,573 cards). Also, the Reserve Bank of India has barred Kotak Mahindra Bank from issuing credit cards.

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Why have card additions slowed?

The key reason for this slowdown is a recalibration of risks by lenders. A banker in charge of credit cards said lenders have decided to go slow on credit card issuances as they look to enhance entry barriers for applicants. This means banks will now be more cautious while accepting credit card applications and do greater scrutiny on repayment capabilities of borrowers. This is supposed to filter out weaker applicants and ease concerns around stress among credit card users. Given that more credit card users are delaying repayments, banks want to protect their balance sheets from stress.

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What is the outlook in the coming months?

Analysts do not expect a pickup in issuances anytime soon. Kaitav Shah, lead BFSI analyst, Anand Rathi Institutional Equities, said he does not see a pickup in credit card issuances this financial year. He said that apart from banks going slow on credit card issuances, restrictions on Kotak Mahindra Bank are also impacting card additions.

Which banks lost market share?

State Bank of India (via SBI Card) had an 18.5% market share by the number of outstanding credit cards in the system, a decline of 55 basis points (bps) from the year-ago period, as per data analysed by Anand Rathi Research. The data available in its 25 November note to clients showed that SBI Card also lost 404 bps year-on-year (y-o-y) market share in credit card spends by value. In the case of Kotak Mahindra Bank, the loss was 112 bps in outstanding cards, while it lost 35 bps by value of card spends in the same period.

Are customers paying back dues?

More and more credit card customers are delaying repayments. Credit bureau TransUnion Cibil says the volume of credit card dues where repayments are delayed by over 90 days has increased 17 basis points (bps) year-on-year to 1.8% in June. Suresh Ganapathy, MD and head of financial services research at Macquarie Capital said in September that young millennials are using the entire limit, defaulting and turning into non-performing assets without even paying back part of the loan.

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