Credit Card Profits Plummet as India Spends More

Credit card profits are diminishing for Indian banks as consumer spending rises. The primary reason is a significant shift in customer behavior, with credit cards now predominantly used as payment instruments rather than for borrowing.

Interest-bearing balances, which include revolving credit and EMI loans, have dropped to about 11% of total annual card spending. This is a sharp decline from approximately 21% seen several years ago, even as overall card spending has grown robustly. This trend directly impacts the profitability of major financial institutions.

Lenders like HDFC Bank have experienced a notable decrease in their overall portfolio yield, attributed to the reduction in interest-earning credit card advances. For SBI Cards, while retail spending increased, receivables grew at a much slower pace, indicating a lower reliance on interest income from revolving balances.

Analysts project further declines in profit margins for credit card operations. The profit generated per unit of card spending is expected to decrease from an estimated 0.84% in 2016-17 to about 0.43% by 2028-29. Banks are exploring strategies like expanding EMI conversions to mitigate these effects.