The 2024 festival season in India, typically a peak period for consumer spending and credit use, has prompted a cautious response from banks as they contend with increasing credit card delinquencies. Several financial institutions are curbing new credit card issuances in response to growing repayment issues and regulatory adjustments aimed at stabilizing unsecured consumer credit risk.
Decline in Credit Card Issuance
According to the latest data from the Reserve Bank of India (RBI), there has been a significant reduction in the issuance of new credit cards. In September 2024, the number of new cards issued was approximately 620,000, down from 920,000 in August—a drop of nearly one-third. This year-over-year drop is even more pronounced, with a 64% decline in new credit cards issued compared to 2023. The cautious stance is driven by concerns over rising defaults and the increasing proportion of unsecured debt, particularly in credit cards, which carries a higher risk profile than secured loans.
This trend has affected even the top issuers, with leading banks like HDFC and SBI Cards slowing their additions. For example, HDFC issued 430,000 cards in September, while SBI Cards issued 140,000, reflecting a restrained approach to new disbursements. Banks have responded by raising eligibility criteria for new card applicants and are increasingly wary of extending credit to individuals in high-risk categories.
Rising Delinquencies
Recent data indicates that credit card delinquency rates have been steadily rising, hitting around 6% in some cases—a figure that has not been seen in years. In the first quarter of fiscal year 2025, balance-level delinquencies on credit cards stood at 1.8%, the highest among various types of consumer credit, marking a year-over-year increase of 17 basis points. This shift has primarily impacted middle-income consumers, who are finding it increasingly challenging to manage their debt due to the limited availability of refinancing options.
Analysts suggest that new-to-credit (NTC) customers, or those less familiar with credit management, may be at greater risk of default. Financial stress is also heightened by a broader economic slowdown affecting urban areas, with some experts noting that rising consumer expenditure during festivals can lead to unsustainable debt levels.
Regulatory Response and Industry Adjustments
To address these risks, the RBI has implemented stricter regulatory guidelines. In November 2023, the central bank raised the risk weights for consumer credit, including personal loans but excluding secured loans like housing and auto loans. This measure aims to buffer banks against potential losses from high-risk lending practices. Consequently, most banks have started recalibrating their approach to unsecured lending, prioritizing stability over rapid growth in consumer credit.
Banks have also witnessed a drop in credit originations across most categories, with the volume of new credit card accounts declining by nearly 30% year-over-year by September 2024. For comparison, other categories, such as two-wheeler loans, saw moderate growth, indicating a shift towards lower-risk products.
Consumer Spending Trends and Market Outlook
Despite the increased caution in lending, consumer spending during the festive season has risen. Credit card expenditures surged from ₹1.69 trillion in August to ₹1.77 trillion in September, showing a month-on-month increase of 4.7% and a year-on-year increase of nearly 24%. However, growth in transaction volumes has moderated, with only a 0.5% increase in September, suggesting that while spending is up, the frequency of transactions has slowed.
Experts predict that banks may continue to restrict new credit card issuances until delinquency rates stabilize, particularly in light of the RBI’s enhanced risk norms for consumer lending. Financial institutions are now focused on identifying creditworthy consumers and balancing growth with prudent risk management to foster sustainable credit growth in the coming years.
This combination of consumer spending pressure, rising delinquency rates, and regulatory oversight has led banks in India to adopt a cautious approach, marking a shift in credit dynamics this festival season.
