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No more power booster! Credit card issuance slows in 2021 as second wave hits lenders, large banks turn cautious

The embargo on new card issuances by market leader HDFC Bank has hit overall growth as has risk aversion by other lenders like SBI Card and Kotak Mahindra Bank.

June 29, 2021 / 05:22 PM IST

The issuance of new credit cards has slowed down among major Indian banks compared with the year-ago period as the onset of the second wave of Covid-19 turned card-issuing banks more cautious, according to data available for the first four months of 2021.

Data released by the RBI showed that between January and April 2021, the number of credit cards outstanding grew just 1.9 percent 622.6 lakh, as against a growth of 2.2 percent during April-June 2020 to 5.74 lakh. This is despite the fact that there was no nationwide lockdown this year unlike in 2020.

Further, the regulatory embargo on new card issuances by HDFC Bank, which is the market leader in terms of cards in force and spends, also impacted growth. In December 2020, the Reserve Bank of India (RBI) barred HDFC Bank from making new digital launches and issuing new credit cards following repeated outages on the bank’s digital channels. The RBI has subsequently conducted an audit of the IT infrastructure of the bank. The embargo is yet to be lifted.

Read: HDFC Bank plans big digital play even as it strives to come out of RBI ban

In fact, the number of new cards issued has been falling every month since January 2021 and was down to 21 lakh in April from 70 lakh in January. While all major players had recorded positive growth between January and April 2020, two banks -- HDFC Bank and Kotak Mahindra Bank -- saw the number of cards in force actually dip in the first four months of 2021. Others like SBI Card and IndusInd Bank grew their card portfolios much slower than they did last year.

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Risk aversion among lenders is on the rise, given the uncertain environment brought on by the pandemic. Kotak Mahindra Bank, for instance, has clearly stated that it has turned cautious on unsecured lending. In October 2020, Uday Kotak, managing director & CEO, said in a call with analysts that the segment worst impacted by Covid by far is the unsecured urban consumer.

“We are more comfortable with home loans, even LAP (loans against property), working capital, construction equipment, agri MSME, but we have year-on-year dropped our unsecured credit card book and unsecured personal loan and business loan book by design. And therefore our mix on that has gone down,” Kotak said.

More recently, SBI Card, which is second only to HDFC Bank in terms of card and spend market share, said that it had tightened risk filters for new issuances.

“For new accounts, we have started applying stricter documentation norms, which impacted our new sourcing in January 2021 and February 2021, but by March, our new accounts are back to average daily volumes of 10,000 per day,” Rama Mohan Rao Amara, MD & CEO, SBI Card, said on 26 April.

SBI Card is also continuously and closely monitoring high-risk segments, such as self-employed professionals and people employed in sectors like travel and entertainment, Amara added.

To be sure, the onset of the second wave of Covid in April and lockdowns in some states also hurt credit card spends. Monthly spends per card for the industry declined to Rs 9,500 in April from an average of Rs 10,500 over the past six months, analysts at Motilal Oswal Financial Services (MOFSL) said in a report dated 24 June.

Simultaneously, the Unified Payments Interface (UPI) channel has been taking share away from credit cards. The market share of UPI in spends stood at 78 percent in April 2021 against a mere nine percent in FY18, while the share of debit and credit cards stood at nine percent each.

As lockdowns ease and consumption picks up, spends may get back to normal, analysts expect. “A rising share of e-commerce transactions and a gradual recovery in other segments would enable spends to grow at a better pace in the medium term,” MOFSL said in its report.
Shritama Bose
first published: Jun 29, 2021 05:20 pm
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