Credit Card Application Rejected? It Could Be Because Are Banks Limiting Credit Card Issuance

In recent months, banks in India have tightened their approach to credit card issuance, significantly reducing the number of new cards being added. October saw a stark decline in numbers, with banks issuing just 0.79 million credit cards, compared to 1.69 million during the same period last year. 

While some banks like HDFC Bank and SBI Card led the additions, others such as Kotak Mahindra Bank, RBL Bank, and Axis Bank witnessed a sequential dip due to cancellations and expiries. This shift raises questions about the impact on credit card growth and the broader implications for the credit card lending ecosystem.

Why Have Card Additions Slowed?

The slowdown is primarily driven by banks recalibrating risks in their credit card lending operations. Stricter scrutiny of credit card applications is now the norm, with lenders enhancing entry barriers to filter out applicants with weaker repayment capabilities. 

This cautious approach reflects growing concerns about credit card defaults. As many users delay repayments, lenders are prioritising their balance sheets over aggressive growth strategies.

Impact on Credit Card Market Share

The tightened stance on credit card issuance has also led to notable shifts in market share among leading banks. SBI Card, for instance, saw its market share in outstanding cards decline by 55 basis points year-on-year. 

Its share in card spends by value also dropped by 404 basis points during the same period. Similarly, Kotak Mahindra Bank experienced a 112 basis point decline in outstanding cards, alongside a 35 basis point drop in spending value.

Rising Credit Card Defaults

An alarming rise in credit card defaults further underscores banks’ cautious approach. According to TransUnion CIBIL, credit card dues with delays of over 90 days rose by 17 basis points year-on-year, reaching 1.8% in June. 

Many young millennials are maxing out their credit limits, defaulting, and turning into non-performing assets, posing significant risks to lenders.

What Lies Ahead?

While banks’ risk-averse strategies may protect their balance sheets in the short term, they also risk stalling credit card growth in a market with immense untapped potential. 

With only a fraction of Indians holding credit cards, a prolonged slowdown in credit card issuance could mean missed opportunities for lenders aiming to expand their credit card lending portfolios. Striking the right balance between growth and risk management will be crucial for sustaining the credit card market share of leading players.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.