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2nd Covid wave to impact credit card spends in near term

The second wave of Covid is likely to impact credit card expenditures, new card sourcing, according to a report by Axis Securities.

The ‘Credit Card Business Monitor’ noted that Citi Bank’s exit from the credit cards business and domestic corporate loan cycle yet to pick up, credit cards will remain a growth avenue, especially for the major players such as SBI Cards, ICICI Bank.

“Given the challenges posed by COVID 2.0, we expect the spends, new sourcing, and business volumes to remain impacted in the near term,” it said.

The report said that in Q4FY21 the credit card industry registered a spend growth of 10 percent YoY and cards-in-force (CIF) growth of 8 percent YoY. This was partly aided by a low-base effect with Covid induced lockdowns impacting March 2020 performance.

On a sequential basis, the industry witnessed the growth of 4 percent QoQ in spends and 3 percent QoQ in CIF, although Q3FY21 is generally a strong quarter on account of the festive season. The business volumes witnessed a contraction of 6 percent YoY in Q4FY21 as PoS (point of sale) spends remained impacted.

For FY21, the overall industry spends de-grew by 14 percent YoY. The first half of FY21 was particularly weak on account of nationwide lockdowns.

However, a strong rebound was visible in H2FY21 with spends and new customer sourcing inching towards pre-Covid levels. H2FY21 spends accounted for 61 percent of the total spends and grew by 3 percent YoY against 31 percent YoY de-growth in H1FY21.

“A large part of the hit on the spends was mainly due to lower travel, entertainment, and discretionary spends, which we believe will remain impacted in the near term due to COVID 2.0,” it said.

In Q4FY21, the private banks continued to dominate the credit card market with a market share of 66 percent (against 65.9 percent in Q4FY20) and 66.6 percent (against 63.4 percent in Q4FY20) in terms of CIF/spends respectively. Public sector banks led by SBI Cards gained market share which stood at 23.2 percent and 21.2 percent in terms of CIF/spends.

The public sector banks gained market share as most key foreign banks under-performed, as per the Axis Securities report.

Amongst the private banks, ICICI Bank was a clear outperformer registering a growth of 16/7 percent YoY/QoQ in CIF and 30/20 percent YoY/QoQ growth in spends. This resulted in a market share gain of 128/261bps YoY in CIF/Spends to 17.1/16.3 percent respectively.

New card additions were the highest for ICICI at 6,73,000 during Q4FY21.

SBI Cards continued its steady momentum with a CIF growth of 12 per cent YoY. Spends grew by 11 percent YoY, supported by a lower base in Q4FY20. New card additions were decent at 3,32,000 during the quarter.

HDFC Bank underperformed as the credit card vertical remains impacted by RBI’s restrictions on new card sourcing. Despite a muted performance on CIF, spends registered a healthy YoY growth of 12 per cent, though moderating by 3 per cent QoQ. HDFC Bank lost market share by 96bps YoY in terms of CIF and gained 71bps YoY in terms of spends.

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