Asset quality from the unsecured segment a big worry; banks have curtailed credit limits and also cut back on new customer additions
Mumbai: Credit card spends in the country grew by only 7.8% in the year ended March 2021, down from a jump of 22.5% in FY20, a sign that discretionary spending continues to remain elusive.
Individual banks indicated spend growth has fallen further in April and May.
“We have seen a significant decline in spends in the last 45 days, largely due to the spread of the virus and strict local lockdowns enforced across states,” the retail head of a private sector lender said. “The worrying factor is that the quality of good assets has taken a hit in this (credit card) segment, and we will go slow on onboarding new clients.”
Banks said they will be on a wait and watch mode for this unsecured category of lending as they have already recorded stress on asset quality with higher impairment rates in the last two months.
HDFC Bank CEO Sashi Jagdishan had on Monday said he was seeing the impact of the disruptions caused by the Covid-19 pandemic on discretionary spending and asset quality of retail portfolios.“When people are going through trauma in their homes, I don’t think they would like to do anything more than essential services or medical care,” he said. “The aspiration levels are bottled up, and if this continues for a longer period, we will see incremental slippages.”
Credit card outstanding was at ?1.16 lakh crore for March 2021 against ?.08 lakh crore for March 2020, according to Reserve Bank of India data.
For the quarter ended March, the whole industry saw spends growth of 10% while incremental credit card additions grew by 8%, largely due to a low base effect. On a sequential basis, spends grew by 4%.
“Given the challenges posed by ‘Covid 2.0’, we expect the spends, new sourcing, and business volumes to remain impacted in the near term,” said Siji Philip, senior research analyst at Axis Securities. “A large part of the hit on the spends was mainly due to lower travel, entertainment, and discretionary spends.”
According to banking experts, constraints created by banks in setting credit limits for new customers as well as curtailing new exposures in the way of muted onboardings could have resulted in a tapering of growth. “Credit cards being an unsecured portfolio, we have seen banks pull back limits on the credit card spends,” said Prakash Agarwal, director and head, financial institutions, at India Ratings & Research. “A lot of it would be driven by supply-side constraints as well.” Spends on credit cards would be expectedly muted over the first quarter of FY22 as well due to the lockdown, he said.
“There are some major factors in play,” said Anil Gupta, vice-president, financial sector ratings, at rating agencyICRANSE 0.15 %. “One is that banks deactivated a lot of credit cards since April 2021 based on their revised risk assessment of this portfolio. Secondly, the country’s largest credit card issuer (HDFC Bank) has also been banned from selling new cards,” he said.
The slowing growth of credit card spends comes even as digital payments have soared during the lockdown. According to RBI data, retail digital payment services including Unified Payments Interface (UPI), Immediate Payment Service (IMPS), and NACH saw transaction volume and value almost double last fiscal.