Daybreak - Are banks done with India's credit card frenzy?

Episode Date: December 2, 2024

For the last five years, India’s new-found love for plastic has been pretty visible. More than 100 million credit cards had been issued by banks by Feb 2024.Banks, as we all know, are in a rush to sell more and more credit cards. To do this, they use a whole gamut of attractive offers.  For example, free access to airport lounges became all the rage for the longest time. The footfall at these lounges went up significantly till banks slowly realised it was getting a bit too expensive. Which is why they started reigning these offers in.Now, believe it or not, banks are slowly cutting down on the number of credit cards they’re issuing. In October 2025, banks issued less than half the number of credit cards they issued last year at the same time. The most obvious reason for lenders being careful is a decision the RBI took in November last year. It increased the risk weight on credit-card receivables of banks and NBFCs. For banks, it was raised from 125% to 150%, and for non-banks from 100% to 125%.This basically meant that lenders would have to set aside more capital for their credit-card receivables.But in this episode, we look at the trajectory of two lenders which rely heavily on credit cards—RBL Bank and SBI Card. Clearly, there is a lot more going on behind the scenes.Tune inListen to the latest episode of Two by Two hereDaybreak is now on WhatsApp at [phone]. Text us and tell us what you thought of the episode!Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Listen to the latest episode of Two by Two here

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For the last five years, India's newfound love for plastic has been pretty visible. More than 100 million credit cards had been issued by banks by February this year. Now, banks, as we all know, are in a rush to sell more and more credit cards. And to do this, they use a whole very very. variety of attractive offers, for example, free access to airport lounges, became all the rage for the longest time. Footfall at these lounges went up like crazy till banks slowly realized that it was getting a bit too expensive. So they started raining in these offers. Now, believe it or not, banks are slowly cutting down on the number of credit cards that they are issuing.

In October of this year, banks issued less than half the number of credit cards that they they had issued last year around the same time. And sure enough, my colleague, the Ken reporter, Ronak Kumar Gunjan, recently noticed a drop in the number of random calls offering credit cards that he was getting. First, he thought that it was phone companies clamping down on spam calls. But that wasn't the case. Banks are consciously doing it. Ronan thought it was a bit surprising.

Because think about it. Why would lenders suddenly decide to stop cashing in, on this considerable demand for credit cards in India. Now, the most obvious reason for lenders being extra careful is a decision that the RBI took in November last year. It increased the risk weight on credit card receivables of banks and NBFCs. For banks, it was raised from 125 to 150% and for NBFCs from 100 to 125%. This basically meant that lenders would,

have to set aside more capital for their credit card receivables. But Ronak looked at the trajectory of two lenders which rely heavily on credit cards, RBL Bank and SBI card. And he says there is definitely more going on behind the scenes. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Da Sharma, and I Don't Chase the News Cycle. Instead, every day of the week, my colleague, Rahil, Philippos and I will come to you with one business story that is worth understanding and worth your time.

Today is Monday, the 2nd of December. We'll start with RBL Bank. It is the only lender in India that has voluntarily slashed its overall credit cards in circulation. And here is why that is interesting. RBL is India's fifth largest credit card issuer. A senior RBL executive told the Ken that nearly a quarter of its loan books consists of credit cards. But between July and October this year, its total outstanding credit cards fell by over 100,000 units.

Basically, that means that the bank wiped out 2% of all its credit cards in circulation. The RBL executive explained it to Roneck. They said every month, some credit cards go out of circulation and some new ones are issued. It's not as if the bank is not issuing new cards. It's just that in the last few months, the bank has issued lesser new cards compared with discontinued ones. Now, there are two big reasons for this fall in credit card count. First, a larger than usual proportion of RBL bank customers availed themselves of credit cards, but they did not activate them. And according to RBI guidelines, a credit card customer is required to make a transaction within the first 30,

days of the card being issued. In case they don't, the bank reaches out to the customer with a request to activate. If still there is no response, the card is closed on the 37th day following the date of issuance. But it is the second reason that Ronox says is more pertinent. The senior executive told him that RBL Bank has realized that the income these credit card customers generate is no longer as lucrative compared to the cost of acquiring and servicing them. Lenders, you see, are only interested in customers who revolve their dues or convert them into monthly installment, because that is where the interest income lies. But in the last year, the bank has noticed a drop in the asset quality of its credit card customers and the amount

spend in collecting the dues is making the interest income less and less attractive. And this is not just true for RBL Bank, of course. But what's interesting is that RBL Bank is now okay with lower than industry standards of credit card growth and it wants to instead focus on the quality of its customers. Meanwhile, it is not just the issuance rate that seems to be slowing down in the credit card space. And that brings us to SBI card, India's largest credit card issuer. SBI card is the only listed pure play credit card issuer in India. For the quarter that ended in September, the company posted more than a 30% drop in net profit compared to the same period last year,

mostly because its credit costs rose squeezing its margins. Even its market share suffered and its customer spending share declined. And it shares one reason for these numbers with RBL bank. Its asset quality has suffered. As of the September quarter, SBI cards gross non-performing assets increased compared to the previous quarter. And the second reason is high spending good quality credit card customers are mostly concentrated in tier one cities. According to a Mumbai-based analyst who tracks this sector, SBI card's largest base of customers comes from Tier 2 and Tier 3 towns. And the lender has been trying to break into wealthier circles of these bigger Tier 1 cities, but that has not worked very well for it so far. And the result of this is that SBI card

sees a lot of low ticket transactions. It brings in lower interest income and loan collection costs are high. The third reason, it is becoming clear that co-branded credit cards are the upcoming stars of the moment. From a current market share about 10% co-branded cards are expected to comprise of 25% of the credit card market in the next four years or so. And that is another area that SBI card is lacking in. The analyst told us that its customer profile and its geography footprint has kind of reduced its appeal among premium brands which are seeking more affluent and urban customers for co-branded partnerships. The brands seem to think that they are better of joining hands with banks with a large base of customers in Tier 1 cities. RBL banks seems to have

caught this trend in favor of co-branded credit cards because despite all of its extra carefulness in the last couple of months, it has also launched a credit card each with Indian Oil Corporation, Mahindra Finance and DMI Finance. But what's happening with RBL Bank and SBI card might not seem all that significant if you look at them separately. But RONOC thinks, taken together and considering the general slowdown in new issuances, are we seeing the curtains come down on India's credit card trends? Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv CN.