As Covid-19 hits consumption, credit card outstandings fall for 2 consecutive months

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Published: June 2, 2020 9:10 AM

Some banks, such as Axis Bank and Kotak Mahindra Bank (KMB), have turned cautious on their unsecured retail portfolios, including credit cards, even cutting spending limits for some customers.

credit card outstandings, coronavirus impact on consumption, coronavirus impact case study, Reserve Bank of India, deployment of creditKMB’s credit-card advances fell on a sequential basis in the March quarter.

Outstandings on credit cards in the system fell for two straight months — in March and April — as the Covid-19 outbreak and the associated lockdown hurt consumption, data released by the Reserve Bank of India (RBI) show.

According to sectoral data on deployment of credit, between February 28 and April 24, the credit card outstanding in the system dropped 12.6% to Rs 96,978 crore. Important reasons behind the fall in outstandings are the ban on supply of non-essential goods by e-commerce platforms as also rail and air travel. E-commerce accounts for about 40-45% of credit card usage and spends.

Earlier, banks had admitted to a drop in credit card spends since the imposition of the lockdown. Srinivasan Vaidyanathan, chief financial officer, HDFC Bank, told analysts in a post-results call that the bank’s card spends in March were lower than the average in January and February by about 21%. “The second half of March was particularly impacted, as the card spend was lower by 35% compared to the average of January and February,” Vaidyanathan added. The management maintained that much of the spends which fell off in March would have been discretionary in nature.

Moreover, some banks, such as Axis Bank and Kotak Mahindra Bank (KMB), have turned cautious on their unsecured retail portfolios, including credit cards, even cutting spending limits for some customers. Uday Kotak, managing director and chief executive officer, KMB, told analysts that the bank is reducing its exposure to the unsecured segment by design. “For example, if you look at credit cards, personal loans and business loans, we had given our caution even in the earlier earnings calls, and which we repeated in the last call, and we actually walked the talk on that, for our conservatism on that was something which was pre-Covid,” Kotak said, adding, “And of course, in the post-Covid world, our view is the pain on the unsecured consumer in the balance sheets of banks would have a reasonable proportion.”

KMB’s credit-card advances fell on a sequential basis in the March quarter.

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