Weak credit card spends due to job loss snatch banks' low-hanging fruits

September's seven per cent year-on-year credit card outstanding is the poorest in recent years

When credit card dues were included in the list of loans eligible for ‘interest-on-interest’ waiver, the inclusion of this segment for a waiver was questioned. A finer reading into users of credits cards and some of the changes undergone by the segment will throw up the answers.

The salaried class accounts for 75 per cent of credit card users. If segmented by age, those in the 25–40 bracket account for over 65 per cent of active credit card users, according to Macquarie Capital. News reports suggest that the salaried class and those in the mid- to senior- management ranks have been most vulnerable to job losses or salary cuts since April, thus validating benefits extended to credit card users.

For banks, credit cards have been the low-hanging fruits for over half a decade. Accounting for 9 – 16 per cent of retail loans, particularly for the private players and the segment posted monthly growth of 18 – 24 per cent, also making it the fastest growing credit opportunity.

That hit a pause with the pandemic and with seven per cent year-on-year growth in September, the segment touched a decadal low growth rate. If the Reserve Bank of India’s last published information on card spends for July is to be extrapolation, the quality of growth may not be very encouraging either.

The sharp month-on-month improvement in cards in net card additions to 3,43,000 cards in July as against 1,09,000 cards in June, is good. But analysts at IIFL Securities feel this may have come from banks relaxing their risk threshold on credit cards. Average card spends increased from Rs 7,500 in June to Rs 7,900 in July. Here again, Suresh Ganapathy of Macquarie Capital says with e-commerce companies once again accepting cash on delivery how this number fluctuates in the coming months will be key. Also, net card additions are still way below March’s 5,87,000 level and average spends also trails January’s Rs 12,000 significantly.

Analysts at ICICI Securities also point out that banks may be also nudging customers to use more debit card usage than credit cards, as a tool to keep credit risk under check. Since 2016, the non-performing assets (NPA) in the cards business was maintained 1 – 2 per cent.  In the context of loan restructuring and waiver, slowing or stagnating card additions and spends could sway the NPA number to banks’ disadvantage. In short, the fast growth patch may have an unprecedented speed bump, repercussion of which will be known in the coming weeks.