New Rules Force Credit Card Strategy Shift
India's credit card market is changing fast, with slower growth and financial firms adjusting their strategies. Credit card spending growth slowed to an estimated 11% in FY26, down from 15% the year before. This slowdown is mainly due to stricter rules from the Reserve Bank of India (RBI), including a ban on using credit cards for rent payments through fintech apps. This action, affecting major companies like PhonePe and Paytm, shows the RBI wants to limit rapid credit growth and increase market supervision. While total credit card spending is high, its growth has slowed. Spending is expected to reach about ₹23.25 lakh crore in FY26, a small rise from ₹21.15 lakh crore in FY25. This situation pushes card issuers to rethink their business models, moving from acquiring many new customers to focusing on profitability.
Fewer New Cards Issued, Revenue Sources Squeezed
New credit card issuances are at multi-year lows. Growth is expected below 8% this fiscal year, the slowest since the COVID-19 pandemic and far below the double-digit growth of FY23. Leading issuers like SBI Cards have cut their quarterly new card targets from 11 lakh to 8 lakh to manage portfolio quality. Fintech companies like OneCard and FiMoney are also reducing new card distribution because of stricter bank policies and their own risk checks. This means banks are now focusing more on their current cardholders than on getting new ones. First-time credit card users have dropped to pandemic-era levels as lenders tighten rules to control rising late payments.
Banks usually earn from credit cards through merchant fees (MDR) and interest on balances. But these income sources are under pressure. Users carrying balances have fallen to 23% of customers. Many issuers have also reduced rewards, especially for utility and rent payments, to maintain profitability per card. Competition from UPI, though its growth has slowed to 30% from 40%, still takes away small digital transactions, dividing the payments market. UPI handles over 80% of retail digital payment volumes in India.
Market Dominated by Few, Cards Split into Two Types
India's credit card market is dominated by a few players. HDFC Bank leads with 22-28% share, followed by SBI Cards (18-20%), ICICI Bank (16-18%), and Axis Bank (12-14%). Together, these banks hold about 80% of credit cards. Card circulation is expected to reach 200 million by FY29, up from over 100 million in mid-2025, but new card additions have slowed. In Q1 FY26, about 1.31 million new cards were issued, a 34.4% decrease year-on-year.
The industry is splitting into two main types of cards. Premium cards are becoming more exclusive, requiring high spending or total banking relationship value (TRV) for big rewards. Examples include Axis Bank's approach and HDFC Bank's Infinia card, which faced criticism but showed the strategy. These premium cards aim to attract high-spending customers and encourage them to buy other financial products.
Basic credit cards now offer lower returns, averaging 1-3%. Banks mostly earn from customer defaults and interest on balances, rather than transaction fees. This is a change from the past, when credit card spending more than tripled from 2016 to FY24, with growth rates often over 20% yearly.
Growing Risks and Lower Rewards
Despite long-term growth forecasts, significant risks are appearing. Late payments are increasing, especially for subprime customers and those new to credit. Balances 91-180 days past due reached 7.6% in June 2024. Credit card Non-Performing Assets (NPAs) reportedly rose by 28% by the end of 2024. This higher risk, along with rising customer acquisition costs (₹1,500 to ₹2,500 per customer), is reducing the ratio of lifetime customer value to acquisition cost for some fintechs to below 3:1.
Major issuers like HDFC Bank, SBI Card, ICICI Bank, and Axis Bank are widely cutting rewards, showing pressure on profitability. Benefits like airport lounge access are being limited, rewards reduced, and spending thresholds raised. This makes it costly for banks to offer attractive perks. For example, Scapia card requires higher monthly spending for lounge access, and ICICI Bank has made several reward cuts. Most cards are in the top 10 cities, limiting growth. Tier 2 and Tier 3 markets are less penetrated and have challenges like unstable incomes and lack of credit history. New regulatory rules, such as stricter disclosures and minimum limits, also increase compliance costs.
Future Outlook: Focus on Sustainable Growth
India's credit card industry is at a strategic turning point. Long-term forecasts are still optimistic, expecting cards in circulation to double by FY29. However, the near future will be more cautious and focused on profitability. Issuers will focus more on keeping current customers, engaging them with personalized offers, and growing their premium card lines. Credit cards integrated with UPI are expected to grow, creating new opportunities for transactions. Growth in Tier 2 and Tier 3 cities is expected to drive expansion, but requires tailored strategies for local market needs and credit access issues.