Active credit cards drop 2.3 million in August over new RBI norms

Spends decline 3% MoM but top Rs 1 trn for sixth consecutive month

The outstanding credit card base dropped to 77.99 million in August from over 80 million in July, mainly on account of the new norms of the Reserve Bank of India (RBI) that warrant the deactivation of cards that are inactive for a year. 

While there was a 2.8 per cent decline in net card additions on a month-on-month (MoM) basis in August, a first in many months, credit card spends slipped 3 per cent on a high base. Still, spends topped the Rs 1-trillion mark for the sixth consecutive month.

The banking system had been adding about 1-1.5 million cards a month for some time now. But in August, “credit cards outstanding for the industry declined by 2.3 million, largely as a result of sharp declines seen for HDFC Bank and Axis Bank. This is largely on account of the implementation of the new RBI norms requiring credit card companies to deactivate cards that are inactive for 365 days. This should impact other players, as well with a lag”, stated Suresh Ganapathy and Param Subramanian in a report for Macquarie Research.

Major issuers, such as HDFC Bank and Axis Bank, have seen a significant drop in their net credit card additions in August. The number of HDFC Bank’s outstanding credit cards dropped by 8.47 per cent in a month to 16.42 million, from 17.94 million in July. Axis Bank witnessed a 10.6 per cent drop in its outstanding credit card base to 8.87 million, from 9.93 million in July. HDFC Bank is the largest credit card issuer in the country and Axis Bank is the fourth-biggest.

“In accordance with the RBI master circular, cards which have not been used for a period of more than one year have been closed in August 2022. Hence there’s a drop in cards in-force numbers for HDFC Bank in August versus July,” a bank spokesperson said.

"This is linked to implementation of RBI master directions as per which cards inactive for more than 12 months as of 1st July 2022 had to give clear consent to continue or be closed. We started the activity in July and closed the cards in August. Since these cards were inactive, we don’t anticipate an impact on spends trajectory. It is possible that other banks have followed a different time-cycle. However, all will have to comply with the directions," said an Axis Bank spokesperson. 

SBI Card, on the other hand, added the most cards in the month under review (296,259), followed by ICICI Bank (211,520). While IDFC First Bank added 70,798 cards, taking its outstanding card base to 1.1 million, the tally for Kotak Mahindra Bank was 55,502 cards. Its outstanding card base was at 4.10 million as of August.

SBI Card added over 296,000 cards on a net basis in August -- higher than the 280,000-290,000 ask rate for it to maintain market share. “We believe the new ‘Cashback SBI Card’ could aid their market share further going into the festival season. SBI Cards has highlighted before that 90-95 per cent of its cards are 365-day active and so the impact of the implementation of the new RBI norms should be limited to 5-7 per cent of its cards (ie, 750,000-1 million cards), in our view,” the report added.

HDFC Bank and Axis Bank lost 130 basis points (bps) and 100 bps, respectively, in market share in August in terms of cards in force; SBI Card and ICICI Bank gained 90 bps and 80 bps in market share. Hence, on a day when the markets ended flat amid volatility, the SBI Card stock gained 3.4 per cent on the BSE to close at Rs 904.95.

Although on an MoM basis, credit card spends were down 3 per cent, they were up 45 per cent on a year-on-year basis to Rs 1.12 trillion.

In July, credit card spends touched an all-time high of Rs 1.16 trillion, registering growth of 6.5 per cent on an MoM basis, despite a high base, and 54 per cent on a YoY basis. Card spends are expected to rise in the coming months, buoyed by the festival season, when spends typically remain elevated. 

Many issuers have lined up special offers on credit cards to boost festival spending and going by recent trends, they expect a promising festive season. A revival in discretionary spending and a pick-up in commercial spends have led to a sustained increase in credit card use.

HDFC Bank’s spends market share is almost 29 per cent now, as it gained 60 bps market share in spends in August. Although ICICI Bank had a considerable market share in August, it remained the second largest issuer. SBI Card is now inching close to ICICI Bank’s spends market share as it gained 70 bps.