Credit card spend still below pre-Covid level

Money Management

- Credit card utilization fell to 21% from pre-Covid level of 24%

- PSBs running over 10%GNPAs in credit card space

- GNPA ratio of all SCBs may increase from 6.9% to 8.1% by September 2022 under the baseline scenario

- Avg limit/credit card largely unchanged at Rs25,000 since FY17

Mumbai: Credit card utilization has come down to 21 per cent in the last fiscal from 24 per cent pre-Covid, an RBI report says.

The growth of loan and limit has slowed in most of the key credit card markets. Lenders respond to changes in the macro environment, the experience of the past decade shows, giving comfort on this business.

Moreover, RBI's FSR says that public sector banks (PSBs) are running more than 10 per cent GNPAs in credit card. The report further says that GNPA ratio of all scheduled commercial banks (SCBs) may increase from 6.9 per cent to 8.1 per cent by September 2022 under the baseline scenario.

Talking to Bizz Buzz, Ashwini Kumar Tewari, Managing Director, SBI, said: "Most PSBs don't have credit cards, only SBI, Bank of Baroda, etc., do. Our card company's GNPAs as at September 21 was 3.36 per cent and we don't see much additional stress there."

According to Tewari, "RBI's FSR looks at various scenarios and comes out with estimates, individual banks have their own strategy to handle NPAs and we at SBI have managed it well so far."

As per the RBI report, which covers banks that represent less than 80 per cent of the credit card industry include outstanding share of credit cards slowed to nine per cent y-o-y, average limit/credit card was largely unchanged since FY17 at Rs25,000, there has been four instances in the past decade where banks have slowed down growth in limits for credit card and utilization rate on cards declined to 21 per cent from a peak of 24 per cent in FY18.

The report further says that the growth has been slow in all the top States where credit card have been issued and was stronger outside of metropolitan markets, 25 per cent of the cards outstanding have limits of up to Rs25,000 while these cards make up three per cent of loans outstanding, while 15 per cent of credit cards have limits of Rs 0.2-0.5 mn, but they make up 30 per cent of the outstanding loan amount and utilization rates have dropped in nearly all the segments of various limit ticket sizes.

"We retain our positive view on this business and see it bouncing back well post Covid," says a report by Kotak Institutional Equities.

Nonetheless, banks seem to be a lot more optimistic of their credit card portfolios. RBI's data in the Financial Stability Report shows an incomplete picture with lower headline non-perfoming loans (NPLs) but this portfolio usually has higher write-offs. The sharp drop in spending as well as repayment by card holders could explain the drop in utilization rate. While the urban markets was less impacted by Covid, it does appear that bankers were cautious, especially as the high credit penetrated market saw the slowest growth in cards issued, growth in limits and outstanding.

However, lenders were comfortable issuing cards with higher limits, which would explain higher growth in Rs 0.5-5 mn credit limit cards. It is quite possible that the focus was on the better-rated customers given that they are undergoing a shift in payments from cash or other instruments into credit cards or any other digital payment product.