Banks go slow on issuing new credit cards

MUMBAI: Rising delinquencies in credit card receivables have made banks wary of ramping up subscriber additions in the festive season. Reserve Bank of India (RBI) data showed that the pace of new card additions slowed to 620,000 in September from 920,000 in August, a fall of nearly a third.New card issuances have fallen by more than 64% from the year earlier. The latest additions take the total credit cards in force to 106 million. Experts say that new card additions will slow further as lenders become wary of the unsecured segment.“New cards issuance was majorly led by HDFC Bank and SBI Cards. However, net new card additions are expected to slow down in the near term due to rising delinquencies in the credit card receivables,” said IDBI Capital analyst Bunty Chawla. “Lenders also remain cautious on new cards disbursements due to the RBI’s risk weight norms.”114860526HDFC Bank added 430,000 cards in September, followed by SBI Cards (140,000) and Axis Bank (53,000). ICICI Bank’s sequential credit card addition was flat at 4,000 cards.Default rates for banks in their credit card portfolio could be running at close to 6%, levels not seen in a long while, as per a report by Macquarie Capital. “In credit cards, the middle-income category is defaulting, especially when the route of taking personal loans and paying off your credit card dues or other dues is disappearing post the RBI clampdown,” said Suresh Ganapathy, head of financial services research at Macquarie Capital.“There is an issue with the middle class and the urban slowdown is for real.” RBI data also showed growth in the volume of transactions slowed to 0.5% in September from 1.6% in August. Thanks to the festive period, however, total card spend increased in September to Rs 1.77 lakh crore from Rs 1.69 lakh crore in August.Spends up 23.8% YoYCredit card spends increased by 4.7% sequentially and 23.8% on year. According to experts, young millennials are using their entire credit card limit and going into default without revolving the amount, turning these accounts into non-performing assets.The banking regulator has flagged heightened risks in the unsecured segment, asking lenders to exercise caution while extending personal loans for consumption purposes. The Reserve Bank of India had responded to stress in the unsecured loan segment by increasing risk weights on unsecured consumer credit and bank credit to non-banking finance companies (NBFCs) on November 16, 2023.