Credit Card Spending and Loan Growth Slow Down in India: Nomura Report
A recent report by the global financial service group Nomura reveals that credit card spending and loan growth in India are under pressure. Lenders are being cautious due to asset quality issues.
Decline in Credit Card Spending
In August 2024, the growth in credit card spending dropped to 13% year-on-year (y-o-y), down from 19% in July 2024. The Reserve Bank of India’s (RBI) data also shows a continued slowdown in both the number of cards issued and overall spending.
Year-to-Date Growth
The year-to-date (YTD) growth for FY25 stands at 17%, compared to 28% in the previous fiscal year. The upcoming festive season may bring a temporary boost, but it is unlikely to be significant due to last year’s strong base and cautious lending practices.
Fewer New Credit Cards
For five consecutive months, the number of new credit cards added has been below 1 million, with just 0.9 million net cards added in August 2024. This marks a noticeable drop in the growth of outstanding cards, which fell to 16% y-o-y in August compared to 19% in FY24.
Spending Per Card
Average monthly spending per card was around Rs 16,000 in August 2024, reflecting a 2% y-o-y drop. For the fiscal year to date (April-August 2024), the annualized spend per card stood at Rs 1.87 lakh, a marginal increase of 1% compared to a 7% rise in FY24 and 27% in FY23.
Impact on Loan Growth
The decline in credit card additions and spending is also affecting loan growth. With slower spends, the growth of loans linked to credit cards is decelerating, as seen in the Q1 FY25 financial results of several lenders. This trend is expected to continue into the second quarter of FY25 and beyond.
Reduced Rewards
Lenders are also reducing the rewards offered on credit cards. Data from FY24 annual reports indicate that the provision for credit card reward points, as a percentage of spending, has decreased for most lenders compared to FY23.
Worsening Asset Quality
Another concern is the worsening asset quality in credit card portfolios. Bureau data shows that the percentage of accounts overdue by 90 days or more rose further in Q1 FY25, although this does not account for write-offs.
Doubts Revealed
Nomura -: Nomura is a financial services group and investment bank from Japan. They provide reports and analysis on economic trends.
Credit Card Spending -: Credit card spending refers to the amount of money people use to buy things using their credit cards.
Loan Growth -: Loan growth means the increase in the amount of money that banks lend to people and businesses.
August 2024 -: August 2024 is a future date, meaning the report is predicting what might happen in the future.
0.9 million -: 0.9 million means 900,000. It is a way to say a large number of new credit cards were issued.
Rs 16,000 -: Rs 16,000 means 16,000 Indian Rupees, which is the average amount spent per credit card in a month.
Lenders -: Lenders are banks or financial institutions that give loans or credit to people.
Asset Quality -: Asset quality refers to how safe and reliable the loans and investments of a bank are. Good asset quality means less risk of losing money.