India's credit card boom is turning into a profitability nightmare for banks. The traditional revolver-led model—where customers carried outstanding balances that generated disproportionate profits—is undergoing a structural disruption. Industry estimates show interest-bearing card balances have fallen to about 11% of annual card spending from roughly 21% several years ago, even as card spending grew at a compound annual rate of nearly 27% between 2021-22 and 2025-26. This shift represents a fundamental transformation in how Indians use credit cards, with profound implications for bank profitability.
The impact is most visible at HDFC Bank, where the decline in interest-bearing credit card advances has lowered the overall portfolio yield by about 50-60 basis points. This decline makes credit cards a significant contributor to the lender's weaker yield trajectory relative to peers and the broader banking system. The bank's credit card advances-to-spends ratio has fallen to about 17% from around 27% in 2018-19, driven almost entirely by lower revolver and EMI balances.
Several factors compound this challenge. The HDFC Ltd merger significantly expanded the bank's overall loan book, making credit cards a smaller percentage of the total portfolio even if absolute credit card assets remained stable. Additionally, the Reserve Bank of India's temporary embargo on fresh card issuance—imposed in December 2020 due to repeated technological outages—caused HDFC Bank's total card base to drop from 15.38 million to 14.82 million between December and June 2021, while market share fell by 200 basis points. Competitors like SBI, ICICI Bank, and Axis Bank gained ground during this period.
SBI Cards exemplifies the structural disconnect between spending and profitability.
Interest income declined about 3% year-on-year to ₹2,421 crore. This divergence occurs because interest-earning assets accounted for about 55% of receivables, while revolvers stood at just 22%—down dramatically from 40% of receivables in March 2020.
The behavioral shift is stark. New customer acquisitions over the last 6-8 quarters are showing 10-15% lower revolving behavior compared to earlier vintages. Latest vintages show a slightly more transactor bias compared to revolving bias. This isn't temporary—management expects revolver balances to continue stable in current ranges with a slight downward bias. Transcripts +1
The transformation stems from multiple interconnected factors. Customers increasingly use credit cards as payment tools rather than borrowing products, shrinking the interest-bearing balances that traditionally generated a disproportionate share of card profits. Digital platforms and payment reminders have reduced instances of customers inadvertently carrying balances. Consumers have become more conscious of making timely repayments, treating credit cards more like debit cards with grace periods.
Cheaper and more seamless alternatives have reduced demand for revolving balances. Buy Now Pay Later (BNPL) has captured approximately 3% of the market share in online e-commerce payments, with expectations to reach 9% by 2024. UPI integration with RuPay credit cards has been a game-changer—RuPay's credit-card share rose from ~3-4% (pre-UPI) to ~16-18% by late 2025 in volume terms. By October 2024, approximately 750 million transactions worth ₹63,825.8 crore had been processed since the feature launched, roughly doubling in less than a year.
Bernstein's analysis quantifies the damage. The ratio of revolver balances to card spending fell to about 2.8% in the June quarter from roughly 7% in 2019. Profit generated per unit of card spending fell to about 0.50% in 2025-26 from 0.84% in 2016-17, with expectations of further decline to about 0.43% by 2028-29. This represents nearly a 50% reduction in profitability per unit of spending over approximately 12 years.
The traditional credit card revenue model is undergoing fundamental transformation. Historically, interest income from revolving balances comprised approximately 80% of credit card profitability, while interchange fees often ran negative due to rewards expenses. As revolver balances decline, this revenue mix becomes unsustainable.
SBI Cards is implementing a comprehensive multi-pronged strategy to expand EMI conversions and improve the share of interest-earning assets. The company has identified three distinct types of installment lending: Personal Loans on Credit Cards, Point-of-Sale Installments, and Pre-Due Date Conversions. Transcripts
Management is working more aggressively at point-of-sale EMI conversion rather than inducing customers to revolve. During festival seasons, large quantities of spends get converted into installments, with average tenures around 7.5-8 months. The company is placing significant emphasis on their FlexPay product, which allows customers to convert spend before the payment due date into installments. Transcripts +1
Strategic partnerships drive this strategy. The Flipkart SBI Card offers curated cashback benefits, the PhonePe SBI Card combines convenience with everyday value, and the IndiGo SBI Card caters to frequent travelers. These partnerships are designed to drive customer acquisition and engagement in high-value segments more likely to utilize EMI options. Transcripts
HDFC Bank has implemented a fundamental strategic shift, moving away from traditional metrics to a relationship-focused approach. Management now views credit cards primarily as "an enabler for liabilities or deposits" rather than as a standalone lending product. Credit card spends now contribute approximately 20-25% of the total deposit basket momentum. Transcripts
This transactor-first approach prioritizes customers who generate transaction volume rather than interest income from revolving balances. The bank has been "circumspect on increasing credit lines for revolvers", and the revolve rate has actually come down over recent periods. Management is recalibrating the business model, focusing on relationship-based value rather than transactional revenue. Transcripts +2
The structural disruption affects HDFC Bank and SBI Cards differently due to their fundamentally different business models. HDFC Bank operates as a diversified banking institution where credit cards represent just one component of a comprehensive financial services ecosystem. SBI Cards operates as a pure-play credit card specialist, with its entire business model dependent on credit card performance metrics.
HDFC Bank enjoys diversification benefits. Credit cards serve as acquisition tools for broader banking relationships, with only 14% of customers currently having time deposits with the bank. The bank maintains superior asset quality with overall GNPA of 1.2% compared to SBI Cards' 2.04%. Lower cost of funds from diversified funding sources provides additional advantages. Transcripts +2
SBI Cards faces greater vulnerability but possesses specialized expertise. With 45% of receivables from transactors, the company is more exposed to the shift toward payment-focused usage. However, its advanced EMI infrastructure—with 33% of receivables in EMI products—and extensive partnership ecosystem provide competitive advantages. Transcripts
The projected further decline in profit per unit of card spending to 0.43% by 2028-29 will significantly reshape competitive dynamics. Lower profitability may drive market consolidation, with larger players enjoying scale advantages in technology and distribution. Compressed margins will drive innovation in fee-based products, particularly premium card segments and value-added services.
The long-term sustainability of traditional credit card business models faces serious questions. Diversified banks like HDFC Bank that can treat credit cards as relationship acquisition tools will likely fare better than pure-play specialists unable to develop alternative revenue streams. The winners will be players that can adapt quickly to the new environment while leveraging their core competitive advantages—whether through relationship banking, specialized expertise, or technological innovation.
India's credit card industry stands at a strategic inflection point. The transition from volume-led expansion to profitability-focused refinement is underway, but the path forward remains uncertain. One thing is clear: the revolver-led model that powered credit card profitability for decades is unlikely to return.
