Banks expect revolvers to slowly return to the credit card market


The number of new customers in January 2022 was 13 lakh, down from 13.7 lakh in December 2021, even as the number of customers reached a 19-month high of 15% year-on-year (year-on-year). Spending rose 35% year-on-year in January, while moderating 7% month-on-month.

As spending fell in January after the holiday euphoria, banks braced for a quarter of a reduction in credit card fee income. In addition, card issuers are facing a loss of revenue due to a decline in the proportion of revolvers in their credit card portfolios.

The number of new customers in January 2022 was 13 lakh, down from 13.7 lakh in December 2021, even as the number of customers reached a 19-month high of 15% year-on-year (year-on-year). Spending rose 35% year-on-year in January, while moderating 7% month-on-month.

Credit card customers are typically categorized as transactions and revolvers. Transactors are people who use their card to spend money, but prefer to settle their card’s accounts on the expiration date. Revolvers are those who tend not to cancel their dues all at once and pay interest on their expenses. According to estimates by those in the industry, the share of revolvers in the credit card market was about 40% before Covid and has now shrunk to 28%.

Bankers expect it to be a while before the revolvers come back on the market. Sanjeev Moghe, EVP & head – cards and payments, Axis Bank, said the system won’t be able to see a much higher share of revolvers until FY25 or later. “The share of revolvers has fallen to varying degrees for all banks because the portfolios that have been moratorium and have been written off in the past two years have been mostly revolver wallets. It could take about two years or more for the system to return to the previous level of revolvers,” he said.

Others are more optimistic and believe that an improving economic climate could restore people’s confidence in credit card lending. Customers have avoided more expensive loans amid the uncertainty of the pandemic, said a senior executive at a major private bank. “Initially there were fewer opportunities to spend money. As business opened up, the second wave came and banks started tightening conditions. The cycle is now coming back and it will be a few more quarters before improved rotational behavior will manifest in our earnings,” he said.

Axis Securities took a similar stance in its March 8 report. “We believe that as the Omricon variant does not cause major disruption and restrictions are eased on February 22 and beyond, we expect credit card spending and new customer acquisition to improve,” the agency said.

At the same time, card issuers want to be careful about increasing their exposure to revolvers, as a steep and sudden increase could significantly increase the credit risk on their books.

The lower incidence of revolving behavior leads to relatively poor use of card limits, according to analysts. A Jan. 4 report from Kotak Institutional Equities states that occupancy rates have declined in nearly all segments of various ticket sizes. “The sharp decline in cardholder spending and refunds could explain the drop in occupancy,” the report said.

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