NEW DELHI: The credit card industry is witnessing a slowdown in growth, with recent data highlighting that credit card receivables have lagged behind unsecured loans for the past two quarters, according to Elara Capitals. In Q1 FY25, credit card loan growth stood at 23% year-on-year (YoY), while unsecured loans surged by 26% YoY, according to industry reports. Despite this, credit card receivables continue to outpace systemic credit growth, which registered at 17% YoY during the same period.
As the industry evolves, the total number of cards-in-force (CIF) rose steadily by 0.9% month-on-month (MoM) to reach 105.5 million in August 2024. However, the yearly growth rate has dipped to 15.6%, down from 16.4% in July and significantly lower than the 20.7% recorded in January. SBI Cards & Payment’s (SBICARD) annual growth run-rate for cards outstanding at 9.4% falls short of the industry’s 15.6% YoY growth,” Elara Global Research analysts noted. This slowdown is attributed to SBICARD’s cautious approach to new account sourcing amidst rising credit quality risks.
The momentum in spending has also slowed, with industry spending growing by 13.2% YoY but declining by 2.6% MoM in August after the general elections led to challenging market conditions. “SBICARD faced a de-growth of 3.4% YoY and 1.5% MoM,” the Elara Global Research report indicated, primarily due to a reduction in corporate spending and the impact of new regulatory norms on billing volume and B2B payments.
Spending per card has also decreased across the industry, with a 3.4% MoM decline. Receivables per card have slowed down by 0.2% MoM in August. Notably, while SBICARD struggled with spend traction, key competitors such as ICICI Bank and IndusInd Bank outpaced the industry on a YoY basis, showcasing their strength in the current market.
The overall view of the industry suggests a flat trend, with SBICARD’s business stagnating. The rise in delinquencies for small-ticket loans, coupled with regulatory changes allowing multi-card network options, has hampered growth in card usage.
Q1 FY25 proved particularly challenging for SBICARD, with new card additions dropping to 0.9 million, reverting to levels seen during the COVID-19 pandemic. Increased uncertainty regarding customer repayments has raised credit quality concerns and exerted pressure on returns. Analysts expect SBICARD’s FY26E return on assets (ROA) and return on equity (ROE) to be around 4.5% and 21-22%, respectively.
Given the challenges ahead, SBICARD is viewed as unattractive from an investment perspective despite a recent stock rally. A reduction is recommended, with a target price set at INR 719, based on a 20.1x FY26E price-to-earnings ratio.