Revolver Misfire Hits Credit Card Issuers Indias Credit Card Boom Sees Lower Bank Profits

Mumbai: India’s credit card boom is turning less lucrative for issuers, yielding lower profit margins for banks even as spending continues to rise. Customers are increasingly using credit cards as a payment tool rather than a borrowing product, shrinking the interest-bearing balances that traditionally generated a disproportionate share of card profits.Industry estimates suggest interest-bearing card balances—revolvers, or outstanding rolling debt, and equated monthly instalment (EMI) loans—have fallen to about 11% of annual card spending from roughly 21% several years ago, even as card spending grew at a compound annual rate of nearly 27% between 2021-22 and 2025-26.Read more: India adds 1.26 million credit cards in July as spending rises; HDFC, SBI lead the way“The revolver-led credit card model is undergoing a structural disruption,” Pranav Gundlapalle, senior research analyst at Bernstein, said in a recent report. “The fall in interest-earning assets (revolvers and EMI loans) as a percentage of spends” is compressing margins, the report said, adding that cheaper and more seamless alternatives have reduced demand for revolving balances.133719576Bernstein estimated that the ratio of revolver balances to card spending had fallen to about 2.8% in the June quarter from roughly 7% in 2019, signifying a sharp decline in profit generated for every rupee spent on cards.Read more: Wave of mass market credit cards erodes foreign majors’ baseThe impact is also becoming visible at large banks. The decline in interest-bearing credit-card advances has lowered HDFC Bank’s overall portfolio yield by about 50-60 basis points, making it a significant contributor to the lender’s weaker yield trajectory relative to peers and the broader banking system, an estimate by Bernstein suggests. A basis point is a hundredth of a percentage point.The analysis also states that HDFC Bank’s credit card advances-to-spends ratio has fallen to about 17% from around 27% in 2018-19, driven almost entirely by lower revolver and EMI balances. Alongside the HDFC Ltd merger, the Reserve Bank of India’s temporary embargo on fresh card issuance and the recent industry-wide moderation in card spending has reduced credit cards’ share of HDFC Bank’s total loan book to about 4% from around 6% in 2018-19.For SBI Cards, the country’s largest standalone credit-card issuer, retail spending on its cards increased 14% year-on-year to Rs 94,033 crore in the June quarter, while receivables grew just 3% to Rs 58,269 crore. Interest-earning assets accounted for about 55% of receivables, while revolvers stood at 22% and interest income declined about 3% year-on-year to Rs 2,421 crore. Management, however, expects revolving balances to stabilise.“On revolver, I think we are seeing that the rates should now remain stable and should be in somewhat similar range,” SBI Cards management said during its June-quarter earnings call, indicating that the downward bias seen over the past few quarters may have bottomed out. The company is also seeking to expand EMI conversions to improve the share of interest-earning assets.Revolvers accounted for about 40% of SBI Cards’ receivables in March 2020, compared with 22% currently. Including EMI loans, interest-earning receivables have declined to 55% from 60% a year earlier, even as card usage continues to expand.Bernstein estimated that profit generated per unit of card spending fell to about 0.50% in 2025-26 from 0.84% in 2016-17 and said he expected it to decline further to about 0.43% by 2028-29.