Banks expect revolvers to make a slow return to credit card market

As spends dipped in January after the euphoria of the festive season, banks are bracing for a quarter of lower fee income from credit cards. In addition, card issuers are having to contend with income loss due to a fall in the share of revolvers in their credit card portfolios.

New customer additions in January 2022 stood at 13 lakh, down from 13.7 lakh in December 2021, even as the rate of customer addition hit a 19-month high of 15% year on year (YoY). Spends grew 35% YoY in January while moderating by 7% on a month-on-month basis.

Credit card customers are typically categorised as transactors and revolvers. Transactors are people who use their cards for spending, but prefer to clear their card bills by the due date. Revolvers are the ones who tend not to clear their dues in one go and incur interest payments on their spends. According to estimates by people in the industry, the share of revolvers in the credit card market used to be around 40% pre-Covid and it has shrunk to 28% now.

Bankers expect that it may be a while before the revolvers make a return to the market. Sanjeev Moghe, EVP & head – cards and payments, Axis Bank, said the system may see a much higher share of revolvers only in FY25 or later. “The share of revolvers has fallen by varying extents for all banks because the portfolios that got the moratorium and were written off during the last two years were mostly revolver portfolios. It might take about two years or more for the system to return to the previous levels of revolvers,” he said.

Others are more optimistic and they feel an improving economic environment may bring back people’s confidence in borrowing on their credit cards. Customers have avoided higher-cost borrowings amid the uncertainty of the pandemic, said a senior executive with a large private bank. “Initially there were fewer avenues to spend. When things opened up the second wave came and banks started to tighten conditions. The cycle is now coming back and it will be a few quarters before improved revolving behaviour plays out in our revenues,” he said.

Axis Securities took a similar view in its March 8 report. “We believe, with the Omricon variant causing no major disruption and restrictions being eased in Feb’22 and onwards, we expect the credit card spends and new customer sourcing to improve,” the broking firm said.

At the same time, card issuers would like to be cautious while increasing their exposure to revolvers as a steep and sudden increase could significantly raise the credit risk on their books.

The lower incidence of revolving behaviour is resulting in relatively poor utilisation of card limits, according to analysts. A report dated January 4 by Kotak Institutional Equities said utilisation rates have dropped in nearly all segments of various ticket sizes. “The sharp drop in spending as well as repayment by cardholders could explain the drop in utilisation rate,” the report said.

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