The Reserve Bank of India (RBI) order on discontinuing inactive credit cards continued to negatively impact the industry size, with top-tier lenders such as HDFC Bank, Axis Bank and ICICI Bank seeing a decline in the number of active credit cards.
Private lender HDFC Bank continued to be the worst affected, with total cards in force down by 1.6 million month on month. Bankers say while the total credit card numbers will normalise soon, they are also looking to change the strategy with regard to onboarding customers.
“It’s about the clear intent to use the card,” said Parag Rao, country head – Payments, Consumer Finance, Technology and Digital Banking, HDFC Bank. “It’s also time where fees need to come back because anything you get for free, you don’t use. It’s actually time to get back fees because customers really see true value only when they pay for something.”
Rao added that the overall industry could see a drop of 8-9% in total credit cards in force.
The central bank’s rule states that if a credit card has not been used for more than one year, the process to close the card shall be initiated after intimating the cardholder. If no reply is received from the cardholder within 30 days, the card account shall be closed by the card-issuer, subject to payment of all dues. The RBI rule came into effect in July.
Although the downward trend continued in September, the fall was less steep than in August. Total credit cards fell by 0.3 million in September as compared to 2.3 million in August. While total credit cards were around 80.3 million at the end of July, it dropped to 78 million in August and 77.7 million in September.
On an individual basis, HDFC Bank deactivated around 2.4 million cards during Q2FY23 which were inactive for a certain period and at the same time added 1.2 million new credit cards, taking its card portfolio to around 16.3 million. HDFC Bank is also losing market share in cards outstanding portfolio and has lost around 200 bps in the last year, down from 23% in September 2021 to 21% in September 2022. In September, Axis Bank deactivated 1.1 million credit cards while ICICI Bank closed 0.4 million cards.
“The number of new credit cards added to the overall card portfolio continued to remain negative for the second consecutive month, down by 2.6 million in two months,” said Bunty Chawla, analyst with IDBI Capital.
“We expect the trend to continue for some more time led by players reporting the deactivated cards details.”