Credit Card Spending and Loan Growth Slow Down as Lenders Worry About Risks: Report by Nomura

According to a report from global financial service group Nomura, credit card spending and loan growth are slowing down as banks become more cautious about risks related to unpaid debts.

In August 2024, credit card spending grew by only 13% year-on-year, a drop from 19% in July. The Reserve Bank of India (RBI) data also showed a decrease in both new credit cards being issued and total spending. The growth for FY25 so far stands at 17%, much lower than last year’s 28%.

The upcoming festive season may offer a short-term increase in spending, but it is not expected to be significant due to a strong performance last year and the cautious approach of lenders. For five straight months, less than 1 million new credit cards have been added to the system, with only 0.9 million in August 2024. This has slowed the growth of outstanding cards to 16%, compared to 19% in FY24.

Many major lenders are limiting the issuance of new cards due to concerns about rising unpaid debts. Spending per card has also dropped, with the average spending per card at Rs 16,000 in August 2024, reflecting a 2% decrease compared to the previous year.

For the fiscal year so far (April-August 2024), the annual spending per card is Rs 1.87 lakh, which is only a 1% increase, compared to a 7% rise in FY24 and 27% in FY23. This slower growth is partly due to high-value purchases made earlier, such as travel and hospitality after the pandemic.

The drop in credit card spending is also impacting loan growth, as many loans are linked to credit cards. This trend is expected to continue, with slower growth in credit card-related loans in the coming quarters.

Lenders are also cutting back on rewards for credit card users. Reports show that the provision for rewards, as a percentage of spending, has decreased compared to FY23. Banks are focusing more on profits than on aggressive growth.

Additionally, the quality of credit card loans is worsening. Data shows that the number of accounts overdue by 90 days or more increased in Q1 FY25, adding to the concerns over unpaid debts.