Are you missing out on the credit card boom?

The average spending per card increased from Rs 1,71,000 in Q2 FY23 to Rs 1,80,000 in Q2 FY24.

While the global economic recovery remains uncertain, the Indian economy stands resilient, showcasing a GDP growth of 7.8% in Q1 FY '24. In this, the digital economy in India plays a pivotal role, with digital payments growing at a remarkable rate of 58% year-on-year in FY23. Amid this digital boom, credit cards continue to be a popular choice, growing at an impressive 30% year-on-year in the last fiscal year.

Digital Economy Driving Growth

India’s digital economy is a driving force behind its economic resilience.
Digital payments have surged at a rate of 58% year-on-year in FY '23, and the Indian Government projects the digital economy to contribute over 20% to the country’s GDP by 2026.

Credit Card Surge

Credit cards, a prominent player in digital payments, have witnessed substantial growth, reaching around 93 million in circulation by September 2023. Card spending hit a record high of Rs 1.48 trillion in August 2023, with credit card usage increasing by 30% year-on-year to Rs 2.18 lakh crores as of August 2023.

Regulatory Landscape and Industry Response

Despite robust growth, the industry faces challenges highlighted by the regulator, emphasizing the need for prudent risk management. Industry data from credit bureaus indicates a slight deterioration in delinquency in credit cards and personal loans. The recent regulatory circular underscores a commitment to a customer-centric approach, emphasizing the importance of responsible practices in the industry.

SBI Card’s Strong Q2 FY24 Performance

In Q2 FY24, SBI Card demonstrated robust business performance, adding a net 5,30,000 cards and 11.42 lakh new accounts. With cards in force reaching 1.79 crores in September 2023, showcasing a 21% YoY growth, SBI Card maintains a market share of 19.2%.

Record-breaking Card Spends

SBI Card achieved its highest-ever quarterly spending in Q2 FY24, surpassing Rs 79,000 crores. The 27% YoY growth in card spending reflects the strong consumer confidence in the credit card landscape. The average spend per card increased from Rs 1,71,000 in Q2 FY23 to Rs 1,80,000 in Q2 FY24.

Diverse Spending Patterns

The growth in card spending is not confined to specific sectors, with both retail and corporate spending witnessing healthy increases. Retail spending reached Rs 61,446 crores, marking a 21% YoY growth, while corporate spending registered a substantial 55% YoY increase, reaching Rs 17,718 crores.

Embracing Technological Advancements

SBI Card’s strategic initiatives include the introduction of UPI functionality on RuPay credit cards, enhancing customer convenience. Already, 9% of RuPay cardholders have enrolled for UPI usage, with significant contributions from categories like department stores, grocery, utilities, and fuel.

Stable Receivables and New Initiatives

SBI Card’s receivables have grown to Rs 45,078 crores as of September '23, with a stable share of interest-earning receivables at 62% QoQ. The introduction of new features on premium cards and the launch of SimplySAVE Merchant SBI Card cater to diverse customer needs, enhancing their experience.

Digital Acquisition and Future Outlook

SBI Card continues to bolster its digital customer acquisition capabilities, extending the SPRINT platform through YONO. This facilitates SBI bank customers to apply for and receive a new SBI Card digitally, a testament to the ongoing commitment to innovation and customer-centric services.

Additional Insights
Banks Aggressively Ramp Up Retail Lending, Prompting RBI to Increase Risk Weights
In response to a decline in consumer loan growth, banks have been actively extending loans to retail customers, even offering top-up loans on auto loans, which essentially act as unsecured credit.

This move has raised concerns at the Reserve Bank of India (RBI), which has responded by increasing risk weights for consumer loans, credit card exposures, and loans to non-banking financial companies (NBFCs) by 25% (now standing at 125%). This adjustment is intended to deter banks and NBFCs from engaging in excessive consumer lending and mitigate potential risks.

Understanding Risk-Weighted Assets
Risk-weighted assets are a measure of a bank’s credit risk, reflecting the varying levels of risk associated with different types of assets. The RBI assigns risk weights to different assets based on their perceived riskiness, with higher-risk assets receiving higher weights. This system helps determine the capital requirements that banks must hold to protect against potential losses.

Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.