India’s credit-card issuers are in a bind. Their most profitable set of users—the so-called ‘revolvers’—are steering away from the habit of carrying a balance from month to month instead of paying their dues in full.
SBI Cards and Payments Services Ltd—the credit-card arm of India’s largest state-run lender, State Bank of India (SBI)—is a case in point. The country’s only stand-alone credit-card issuer, which is also the second-largest by the number of cards issued, is witnessing a decline in users who pay as much as ~42% interest per annum.
People tend to revolve more when they spend more. However, with the pandemic reducing the avenues for splurging, the average spending through SBI Card credit cards dropped 21% to Rs 1.1 lakh (~$1,330) in the year ended March 2021—resulting in fewer revolvers for the company. Even worse, many revolvers turned delinquent and moved out of the credit-card ecosystem.
The change showed up in SBI Card’s receivable mix. The dues that the credit-card issuer was bound to get from revolvers came down to 28% in 2021 from the high of ~40% a year ago. Contrary to expectations that receivables from revolve would bounce back once the pandemic receded, it fell further to 24% in the quarter ended December 2022 from 27% in the same period a year ago.
“It is taking longer than we expected. But it is an industry phenomenon; everyone is looking at it and making attempts to improve the revolver,” SBI Card’s managing director (MD) and chief executive (CEO) Rama Mohan Rao Amara said in a call with analysts in April 2022.
The shift in cardholders’ behaviour directly impacts SBI Card’s net interest margin (NIM)—the difference between interest yield and expense—which touched an all-time low of 11.6% in the quarter ended December 2022.
The issuer’s shares have also declined 24% over the last six months on the National Stock Exchange. SBI Card went public in 2020. Even though it was touted to be the biggest public offer of the year, it listed at a discount as the pandemic was just setting in.
A host of factors are causing credit-card issuers’ revolvers to malfunction. An increase in the use of credit cards for paying rent, other options promising cheaper credit, and especially the rising awareness among borrowers about the toxicity of maintaining high credit-card debt are all coming to bear.
Credit-card issuers enjoy free rein when it comes to charging interest, a situation that could change with India’s banking regulator, the Reserve Bank of India (RBI), increasing scrutiny of credit cards. “Banks will do whatever it takes to keep it up,” a Citibank executive said, but a turnaround is afoot. India’s top banks are already working on rationalising the revolve interest rate as soon as May.
“This market of revolving will not be there for very long…,” Vijay Jasuja, former MD and CEO of SBI Card, told The Ken.
Counting bullets
The top reason driving down revolve is the availability of cheaper credit from other sources.
