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MUMBAI, April 25, 2025 — India's credit card industry is quietly rewiring its economics. With fewer customers carrying balances from month to month, issuers such as Axis Bank and SBI Cards are shifting toward EMI-based loans, merchant-funded offers and fee-driven products to keep card portfolios profitable. Fresh research from Bernstein quantifies the scale of the shift: interest-bearing balances now represent only about one-tenth of annual card spending, down from roughly one-fifth a few years ago, even as spending grows at a blistering pace.
A payment product, not a borrowing product
The traditional credit card model depends on "revolvers" — users who roll over unpaid balances and pay interest. That engine is losing steam in India. Transaction volumes are expanding far faster than the interest-earning receivables that generate the bulk of card revenue, signaling that cards are increasingly being used as a payment tool rather than a credit vehicle.
Axis Bank's head of credit cards, Arnika Dixit, said the trend is structural rather than temporary. Even if core revolving balances level off or decline, she expects EMI-based lending on cards to keep building the industry's ending net receivables — the outstanding book that drives future interest income. She pointed to markedly improved consumer discipline around repayment, aided by the proliferation of apps and platforms that nudge customers to pay dues on time. That has cut down accidental revolving, where cardholders incur interest charges not from deliberate borrowing but from missing a payment deadline.
Bernstein: the numbers behind the disruption
Bernstein's analysis shows interest-bearing card balances — comprising both traditional revolvers and EMI loans — have fallen to roughly 11% of annual card spending from about 21% several years ago. During the same stretch, card spending grew at a compound annual rate of nearly 27% between the 2021-22 and 2025-26 fiscal years.
The contrast is even starker for pure revolving debt. Bernstein estimates that revolver balances as a share of card spending dropped to approximately 2.8% in the June quarter, down from roughly 7% in 2019. That translates into sharply lower profit generated for every rupee spent on cards. Senior research analyst Pranav Gundlapalle framed it bluntly: the revolver-led credit card model is undergoing structural disruption, and the fall in interest-earning assets as a percentage of spends is compressing margins. Cheaper and more seamless credit alternatives, he noted, have reduced demand for revolving balances.
The EMI pivot
For issuers, the response is to convert spending into EMI at the point of sale. A shopper buying a phone or a laptop on a credit card can be shifted into an equated monthly instalment plan, creating a steady stream of interest income that behaves like a small, structured loan. Dixit described this as a key route for building revenue-accretive balances on the card.
This strategy effectively trades the uncertainty of revolving behavior for a more predictable repayment schedule. EMIs also tend to carry higher effective yields than merchant discount fees alone, giving issuers a way to defend portfolio returns even as the revolving base shrinks.
Fee income is the other pillar. With cards functioning more like payment instruments, issuers are extracting more from interchange, late fees, annual charges and merchant-funded reward programs. Industry observers say the monetization of the payment side of the card business will only deepen as competition intensifies.
SBI Cards: a case study in mix shift
SBI Cards illustrates how sharply the receivables mix has changed. Revolvers accounted for about 40% of the company's receivables in March 2020; today they represent roughly 22%. Even after including EMI loans, interest-earning receivables have slipped to 55% of the total book from about 60% a year earlier — this despite continued expansion in card usage.
For a company whose profitability has historically been tied to interest income, the trajectory underscores the urgency of finding alternate revenue streams. The same pressure applies across the industry, where the growth in cards outstanding is increasingly driven by customers who treat the card as a convenient payment rail, not a source of credit.
Regulatory and competitive forces deepen the shift
Behind the consumer behavior change lies a stack of regulatory and competitive pressures. In late 2023, the Reserve Bank of India raised risk weights on unsecured consumer credit, including credit card receivables, making it more expensive for lenders to fund aggressive balance growth. That pushed many banks to tighten credit lines and recalibrate underwriting, reinforcing the trend toward lower revolving exposure.
Simultaneously, the competitive arena has expanded. Fintech lenders offer pre-approved personal loans and buy-now-pay-later products that compete directly with card revolvers for short-term credit needs. Add to that the rapid adoption of credit cards linked to UPI — particularly RuPay cards — and the dynamics change further. UPI-linked cards behave mostly as payment instruments, with users settling dues in full each month rather than carrying balances.
Another notable development is the rise of fixed-deposit-backed credit cards. These secured cards, often marketed to first-time users, are prefunded by the customer's own deposit, which nearly eliminates the possibility of revolving for the issuer. They improve financial inclusion but do little to boost interest income, forcing issuers to rely on fees and transaction volume for returns.
A structural, not cyclical, reset
The contrast with previous credit cycles is important. Historically, card profitability swung with interest rates and consumer confidence; when rates rose, revolving balances and interest income tended to follow. The current Indian experience looks different. The decline in revolvers is being driven by better-informed customers, superior digital alternatives and a regulatory environment that discourages unsecured leverage — forces that are unlikely to reverse.
To be sure, this is not a uniquely Indian story. In the United States and other mature markets, buy-now-pay-later providers and fintech lenders have chipped away at traditional revolving behavior, particularly for smaller-ticket purchases. What distinguishes India is the speed and breadth of the change, amplified by UPI's dominance and the rapid digitization of credit distribution.
What it means for investors and the industry outlook
For equity analysts, the implication is that card issuers can no longer be valued primarily as interest-earners on revolving debt. The earnings mix is shifting toward interchange, annual fees, late fees and EMI-linked interest, which behave differently across economic cycles. Issuers that successfully scale EMI conversion and merchant-funded programs are likely to defend return on assets better than those relying on traditional revolving habits.
The road ahead is not without risks. EMI books, while more predictable, are still unsecured consumer credit and could see higher delinquencies if the economy slows. Fee-led revenue also invites regulatory scrutiny — India's central bank has repeatedly tightened rules on late fees and penal charges, and similar debates around card fees are underway in several countries.
Still, the direction is clear. As Dixit put it, the credit card book of the future will be built on EMI and fee-led products, with traditional revolving serving a smaller, more deliberate slice of the market. For an industry long dependent on interest-charged balances, that represents both a challenge and an invitation to reinvent its profit model.
