Regulatory Shifts redefine Credit Card industry

The Reserve Bank of India released its latest credit-card statistics on 26 March 2026. The data shows a significant 11% drop in total transaction value, from ₹1.99 lakh crore in January to ₹1.78 lakh crore in February. This decline is partly due to the shorter 28-day February calendar, but it also signals a shift in consumer behavior.

Consumers are making fewer discretionary purchases due to inflationary pressures. The year-on-year data shows a 6% increase in February 2026 spending compared to February 2025, but at a slower pace than the 8.1% growth recorded a year earlier.

Industry Growth Slows Down

According to Sweta Padhi, senior analyst at IDBI Capital, “Industry growth continues to trend lower in the mid-to-high single-digit range.” This moderation reflects a deliberate shift by issuers toward “calibrated growth.” Issuers are rationalizing reward points to achieve this growth.

Major banks like SBI Card, HDFC Bank, and ICICI Bank have recently rationalized their reward points. As a result, interchange earnings have slipped to roughly ₹1.30 per ₹100 spent, down from ₹1.45 a year ago.

Rebalancing Growth: The Interplay Between Risk and Reward

Banks have started capping spend-linked bonuses at 1.5% of monthly turnover to protect profitability. This move is designed to protect banks’ profitability as the credit-card market edges toward maturity.

The cost-to-income ratio, a key metric for banks, has risen to 58% in FY 26 Q3 from 52% in FY 24. This increase in operating expenses without a commensurate lift in revenue affects banks’ profitability.

Rebalancing Growth: The Interplay Between Risk and Reward Banks have started capping spend-linked bonuses at 1.5% of monthly turnover to protect profitability.

Expanding Reach: The Rise of New Credit-Card Holders

Despite the moderation in spend, issuers added a net 1.05 million cards in February, the highest six-month tally on record. The RBI’s card-holder database shows the total base now stands at 102.3 million.

62% of the fresh additions originated in tier-2 and tier-3 cities. Credit-bureau reports indicate that 38% of these newcomers are classified as “new-to-credit,” underscoring banks’ push into previously untapped segments.

Digital Transformation: The Double-Edged Sword of Growth

Card-not-present transactions, driven largely by e-commerce, still account for 73% of total volume. However, the introduction of a 1.1% cap on UPI-credit interchange fees is eroding net take-rates.

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Banks must balance the benefits of digital growth with the challenges of maintaining profitability. The rise of digital payments has reduced the need for physical infrastructure, but it has also increased the complexity of managing online transactions and mitigating associated risks.

Fee Revenue Shift: A New Paradigm

Banks are adapting to the changing regulatory environment by expanding fee-based income streams. The growth of late-payment penalties and EMI-conversion fees has become a critical component of their revenue strategy.

As the industry continues to evolve, it is likely that we will see further innovation in fee structures, as banks seek to maintain profitability while complying with regulatory requirements.

Banks must balance the benefits of digital growth with the challenges of maintaining profitability.

The Long-Term View: Navigating Regulatory Shifts and Consumer Behavior

The RBI’s regulatory changes are sharpening the focus on risk, with the October 2023 amendment adding a risk-weight surcharge for unsecured consumer credit. This move is nudging banks toward secured lending.

The Finance Ministry’s 12% surcharge on capital gains from share-buybacks, effective 1 April 2026, has also increased the cost of leveraging balance-sheet capacity for financial institutions.

Critical Insights: Unpacking the Data and Regulatory Implications

The simultaneous rise in card count and moderation in spend signals that India’s credit-card market is entering a mature, profit-over-volume phase.

Underwriters are likely to tighten eligibility criteria, especially in the newly-served tier-2 and tier-3 corridors, while credit limits may stay modest for the majority of fresh entrants.

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Critical Insights: Unpacking the Data and Regulatory Implications The simultaneous rise in card count and moderation in spend signals that India’s credit-card market is entering a mature, profit-over-volume phase.

The credit-card industry is evolving rapidly. Banks are adapting to changing regulatory environments and consumer behavior. As the industry continues to evolve, it is likely that we will see further innovation and disruption.

The key to success in this new landscape will be the ability to adapt, innovate, and prioritize the needs of consumers, while maintaining prudent risk management practices and compliance with regulatory requirements.