Whalesbook
India's Changing Credit Card Market
India's credit card sector is changing significantly, impacting bank profitability. The number of 'revolver' customers, who carry balances and pay interest, has sharply declined. Before the pandemic, revolvers made up 40% to 45% of credit card users. That number has fallen to between 22% and 24%. This shift to 'transactors,' who pay their balances in full each month, cuts off a key revenue stream for lenders and affects overall profitability.
SBI Cards has seen its revolver rate drop from 34% in Q1 2021 to 22% by Q1 2026. Despite this, the overall credit card market has grown, with transactions increasing over 2.6 times between 2021 and 2025, reaching 570 crore transactions and a value of ₹23.2 lakh crore in calendar year 2025. Private sector banks have further cemented their dominance, capturing 71.1% of outstanding credit cards by December 2025. However, overall new card issuance growth has slowed, with a notable 28% year-on-year decline in Q2 FY26, signaling increased caution among lenders amid evolving consumer credit dynamics.
New Strategies Beyond Interest Income
To adapt to fewer revolvers, banks are adjusting their business strategies. Banks are focusing more on income sources other than interest. ICICI Bank and Kotak Mahindra Bank point to this structural shift, stressing the importance of cost control, better rewards programs, and growing EMI portfolios to maintain profits. This shift includes using UPI-linked credit cards, now about 40% of transactions, and promoting RuPay cards.
The trend towards greater transaction volume and fee-based income is evident. Consumer spending is changing too. Non-essential purchases are expected to make up over 43% of household budgets by 2030, boosted by higher incomes and a move toward premium goods. This supports the use of credit cards for everyday spending. Fintech companies are also increasing their role, providing about 15% of new credit cards by November 2025. They offer innovative credit services and use data analytics for risk assessment. This broad approach helps them build stronger customer relationships beyond simple lending.
Risks and Regulatory Pressure
However, banks face significant risks. Rapid credit card growth has led to concerns about loan quality and how much debt consumers are carrying. Non-performing assets (NPAs) have increased, leading the Reserve Bank of India (RBI) to raise risk weights for unsecured loans like credit cards to 150%. This has directly slowed growth. New card issuances dropped from peaks over 20% year-on-year to about 4% by August 2025.
Also, the cost of attractive reward programs is becoming too high. Banks, including ICICI Bank, are cutting card benefits like cashback, limiting lounge access, and making reward points harder to redeem. These cuts are due to higher operating costs, more late payments, and slowing spending. Average credit card interest rates remain high, from 30% to 48%, with no immediate sign of a rate cap, unlike proposals in the US. This creates a challenging outlook, especially for specialized credit card firms like SBI Cards. It trades at a higher P/E ratio of about 27.5, compared to ICICI Bank's 16.5-17.8 and Kotak Mahindra Bank's around 20.
Future of Credit Cards: Adapting the Model
India's credit card industry is shifting from an interest-income model to one based on transaction volumes, fees, and integrated financial services. Consumer spending continues to grow, supported by the middle class and premiumization trends. However, banks are more cautious about acquiring new customers. The focus is shifting to deeper customer engagement using co-branded cards, installment plans, and other value-added services.
The long-term success of this new model relies on strong risk management, ongoing product innovation, and balancing customer growth with good asset quality amid tighter regulations and changing consumer behavior. Investor reactions suggest these challenges are being factored in. SBI Cards trades at a premium P/E due to its specialized focus, while diversified banks like ICICI and Kotak hold more moderate valuations.