In October 2023, India's credit card spending reached an impressive Rs 2 trillion (approximately US$ 2.38 billion), marking a 14.5% increase from the previous month, according to the latest data from the Reserve Bank of India (RBI). This surge in spending was primarily driven by the festive season, with many consumers utilizing their credit cards for purchases during the holiday period. The year-on-year (YoY) growth was also notable, registering a 13% increase, highlighting the continued rise in consumer spending despite broader economic challenges.

However, the number of outstanding credit cards in India saw only a modest increase of 12.85% YoY, bringing the total number of active cards to 106.88 million. This growth was relatively slower when compared to the spending increase seen during the festive season, indicating that while consumers are spending more, the growth in the overall number of credit cards is being somewhat restrained. The net addition of credit cards in October stood at 786,337, which was higher than the 620,000 added in September but lower than the 920,000 added in August.

Festive Season Impact on Credit Card Spending
The increase in spending during October was attributed to the festive season, which historically sees a surge in consumer activity across categories like electronics, apparel, and home goods. Mr. Nitin Agarwal, a research analyst at Motilal Oswal Securities, explained that the festive purchases led to a significant uptick in credit card transactions, though he also pointed out that delinquencies in the credit card sector remain the highest among all credit categories. This has prompted credit card issuers to tighten their credit score requirements and reduce spending limits in an effort to mitigate potential defaults.

Bank Performance and Credit Card Issuance Growth
The growth in credit card issuance was led by HDFC Bank, which added 241,119 new cards in October, followed by SBI Cards with 220,265 and ICICI Bank with 138,541. These banks have been leading the push to expand their credit card portfolios, capitalizing on the strong demand during the festive period. On the other hand, Axis Bank reported a decline of 20,573 in its outstanding credit cards, a stark contrast to the general upward trend in card issuances.

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Despite the overall growth in credit card spending, there are signs that issuers are beginning to tighten their credit standards. Mr. Saurabh Bhalerao, Associate Director and Head of BFSI Research, noted that while the festive season brought a boost to spending, credit card issuers are exercising caution due to the delinquency levels and the economic uncertainty. He further cautioned that credit card spending growth for the current financial year is expected to be slower than the high teens growth experienced in the previous year.

RBI's Measures to Control Consumer Credit Growth
In response to concerns about the rapid growth in consumer credit, the RBI has taken steps to address potential risks. The central bank has raised risk weights for certain components of bank lending related to consumer credit, including credit cards. This move is aimed at ensuring that banks maintain prudence in their lending practices, particularly in the unsecured lending segment. As a result, banks are reassessing their growth strategies and potentially adjusting their exposure to high-risk consumer loans.

The increased risk weights imposed by the RBI could lead to more cautious lending practices by banks, which may slow down the pace of credit card issuances and overall growth in consumer spending. This is in line with the RBI's broader efforts to maintain financial stability while balancing the need for continued growth in the consumer credit sector.

Conclusion and Future Outlook
The growth in credit card spending in India is a positive sign of the strong consumer demand in the economy, particularly driven by seasonal factors like the festive season. However, the RBI's tightening measures, along with the high levels of delinquencies, suggest that credit card issuers may adopt a more cautious approach in the coming months. While banks like HDFC Bank, SBI Cards, and ICICI Bank have seen solid growth in credit card issuances, the overall outlook for the credit card market in FY24 may see a slowdown compared to the previous year.

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