Banks’ credit card exposure continued to grow at a fast pace of over 30 per cent, despite the higher risk weights on unsecured loans introduced by the Reserve Bank of India in November 2023.

Credit card outstanding for banks grew by 31.3 per cent in January 2024, reaching ₹2.6 lakh crore, which is also slightly higher than the 31.2 per cent recorded in the previous year. The outstanding amount had stood at ₹2.5 lakh crore as of December 2023. For FY24 so far, the growth in credit card outstanding has been 26.3 per cent.

In November 2023, the RBI increased the risk weights on unsecured consumer loans by 25 per cent for both banks and NBFCs, citing unprecedented growth in unsecured retail loans and the consequent concerns regarding rising systemic risk. This also included an increase in risk weights for credit card receivables, raising them to 150 per cent for commercial banks and 125 per cent for NBFCs.

As a result, bank credit to NBFCs moderated to ₹15 lakh crore in January 2024 from ₹15.2 lakh crore a month ago. Growth in personal loans also moderated to 23.3 per cent from 26.6 per cent in the previous year. However, the same trend was not visible in credit cards.

While banks maintain that most card issuances are to existing and creditworthy customers, higher capital requirements, combined with stagnating revolve rates, are prompting issuers to focus on premium customers and higher spending rather than the volume of card issuances.

Revolve rates for most issuers plummeted post-pandemic, but industry experts had anticipated that it was a temporary phenomenon due to comfortable household cash flows. However, revolve rates have since plateaued with better credit discipline and cardholder caution against higher rates on cards. Some cardholders are even opting to take lower-cost personal loans to repay their credit dues, avoiding incurring high-interest rates on the latter.

As per RBI data, in January 2024, foreign banks such as American Express, Standard Chartered, and SBM Bank India saw a 0.6-2.3 per cent month-on-month decline in their outstanding card balances.

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