Whalesbook
Credit Card Use Spreads to India's Smaller Cities
The use of credit cards is rapidly expanding into India's smaller cities, marking a significant shift in consumer finance. This growth is fueled by rising incomes and greater familiarity with digital payments. A major catalyst is the integration of RuPay credit cards with the Unified Payments Interface (UPI), which allows consumers in Tier 2 and Tier 3 cities to easily use credit for daily purchases. SBI Card's recent data shows a substantial increase in both the number of active cards and transaction values, signaling a move from simply acquiring customers to active credit use.
Digital Credit Gains Traction in Emerging Cities
Data from SBI Card indicates a strong demand for UPI-linked credit cards in these growing urban areas. Notably, 77% of customers using UPI with credit cards, and about 81% of the spending via this channel, come from Tier 2 and Tier 3 cities. This highlights the growing role of credit cards in financial inclusion outside major metropolitan areas. The Indian credit card market is expected to grow steadily, driven by consumer demand and financial inclusion efforts.
Shift Towards Active Spending
With an estimated 118.6 million credit cards in circulation by FY26, India's credit card market is moving towards increased utilization. Total retail spending reached over ₹3.54 trillion in FY26, up 15% year-on-year. Online transactions still lead, making up nearly 62.5% of retail expenditures, reflecting a widespread shift to digital spending across various categories, supported by payment technology and government digital finance initiatives.
Changing Consumer Habits
Salila Pande, MD & CEO of SBI Card, points to rising incomes, aspirations, supportive policies, and digitization as key drivers. Consumers are increasingly focused on lifestyle and experience-based purchases, valuing the convenience of daily transactions. SBI Card is enhancing its offerings through partnerships and innovation to meet these evolving demands. The company reported a net profit of ₹609 crore for Q4 FY26, up 14% year-on-year, with total income rising 7% to ₹5,187 crore. For the full fiscal year 2026, net profit grew over 13% to ₹2,167 crore.
Rise in EMI and Diversified Spending
SBI Card saw strong double-digit growth in EMI transactions during FY26, as customers used installment options for gadgets and durables. This trend of spreading payments for higher-value items is now reaching smaller cities. Consumers are also strategically using multiple credit cards for benefits across categories like travel, wellness, and digital spending, favoring personalized rewards and experience-focused usage.
Analysis of the Market Shift
The integration of RuPay with UPI has significantly broadened the use of credit cards for everyday, low-value transactions. This has intensified competition, boosting RuPay's credit card market share to an estimated 16-18% by late 2025 in volume, largely due to UPI usage. SBI Card holds a notable market share, with national credit card spending approaching one-fifth of the market. As of May 2026, SBI Card's market capitalization was approximately $6.50 billion USD with a P/E ratio around 29.7. Major competitors include HDFC Bank, ICICI Bank, and Axis Bank.
Potential Challenges
Despite growth, headwinds exist. SBI Card's net profit for Q1 FY26 declined 6% year-on-year due to higher provisions for credit losses and rising operating costs. The company's credit cost increased to 9.6% in Q1 FY26, and its cost-to-income ratio rose to 56.8% in Q3 FY26. While asset quality improved with Gross Non-Performing Assets (GNPA) falling to 2.41% by Q4 FY26, economic volatility or rising interest rates could still challenge asset quality and profitability. Analysts have mixed ratings, with 7 buy, 11 sell, and 7 hold recommendations for SBI Cards.
Future Prospects
Analysts' average 12-month price target for SBI Cards is around ₹742.25 INR, suggesting potential upside. The Indian credit card market is expected to keep expanding, driven by digital payment adoption, consumer credit demand, and financial inclusion initiatives. Innovations like UPI-enabled credit cards and further user segmentation are likely to shape the market. SBI Card's focus on digital onboarding and strategic partnerships should support its continued growth.