Credit card issuers are looking at alternative sources of interest income such as EMI conversions and cash withdrawals against credit card limits, as revolver rates continue to decline steadily since the pandemic.

The share of revolvers in credit card portfolios has fallen 10-15 per cent at an industry level from the pre-pandemic level of around 35-40 per cent, market participants said. “During the pandemic, the lower rung of credit customers was hit hard and stepped out of the marketplace. Therefore, what remains now are relatively credit conscious customers,” said Prashant Joshi, MD and Head - Consumer Banking Group at DBS Bank India.

Most banks restructured retail and unsecured portfolios under the pandemic moratorium, which led to a large portion of these revolvers — cardholders that don’t settle dues on time — exiting the system as their dues were converted to EMIs. Fall in luxury and discretionary spends amid an elongated pandemic also started weighing on revolver rates.

Conservative limit assignments to avoid overleveraging customers, tightened risk guardrails and much tighter selection criteria on the part of issuers to control loss rates also led to some collateral damage in revolver rates, said Shailendra Singh, MD and CEO of BOB Financial Solutions.

The growth of digital lending platforms is also to blame in part, as these platforms offer on-tap personal loans at 17-23 per cent, much lower than the 35-40 per cent rates applicable on credit card balances.

Lower interest rates of 18-20 per cent on EMI options such as PoS (point-of-sale) EMIs and balance conversion to EMIs has also led to cardholders either taking digital loans to repay credit card bills or opting for more cost-effective repayment options that also offer flexible tenures.

Revolvers’ share dip

Traditionally, 40-42 per cent of cards’ revenue used to come from interest income, another 40 per cent from interchange, and the balance from fees — joining, renewal, late and processing fees, among others.  Within interest income, the share of revolvers has fallen to below 50 per cent from 65-70 per cent before the pandemic, market participants said.

“Net interest margins were as high as 14-15 per cent, now they are in single digits around 9 per cent,” said Vijay Jasuja, Director on Punjab National Bank (PNB Cards) board and Independent Director at Stashfin.

However, what is more concerning is that in absolute terms, the quantum of interest earning itself has come down due to the competition, the alternate options available and the interest rate arbitrage, the former SBI Card MD added.

Issuers are then looking to compensate for the loss by inducing transacting cardholders to be converted into some sort of interest-bearing receivables, in the form of purchases or balances to be converted into EMIs, as well as offering EMI-based cash withdrawals.

“These help in supporting not only the interest income and hiking up the interest-bearing receivables base, but also add to the fees income in the revenue line, which is a much needed respite in these times,” Singh said, adding that revenue from revolving balances has fallen to 53 per cent of the cards portfolio from 60 per cent before the pandemic.