Why do banks keep offering you credit cards? Here’s the real reason | Mint

Indian banks have rapidly expanded their credit card operations. Due to this nearly 11 crore outstanding cards are in the system as of early 2025 according to Reserve Bank of India data. This growth is driven by a highly profitable business model that generates strong revenue from interest rate charges, fees, and merchant transactions.

Further, banks willingly issue credit cards because they offer a steady stream of income for them, helps in increasing the number of customers and encourages consumer spending. You need to always focus on keeping your credit utilisation ratio in check. Here’s a closer look at how this business model works and why banks are betting big on credit cards and are eager to offer you these financial products.

Why are banks betting big on credit cards?

Banks earn a profit from credit cards in the form of interest charges, annual charges, re-issuing charges and merchant fees. Interest charges on overdue balances are extremely profitable since they are extremely high if paid during the grace period. Banks also earn profit in the form of interchange fees by the merchants for each transaction. This has resulted in tremendous expansion of credit card business in India.

Due to this expansion, credit card consumption in India increased 10.8% year over year in January 2025 to ₹1.84 trillion, but declined modestly sequentially according to the data provided by the Reserve Bank of India.

How do bank credit cards attract consumers?

Credit cards offer several advantages to users. Some of them are: reward schemes, cashback, incentives and discounts on air travel, and the opportunity to build credit. Now, many Indians use credit cards to establish a credit history, manage credit scores, which is essential for securing future loans. Therefore, using cards helps in ensuring you are in a position to avail more credit in the future if you are able to maintain a consistent repayment history.

Reward schemes, such as cashback and loyalty points, are effective tools for encouraging repeat spending and maintaining customer engagement. However, as usage increases and instances of misuse rise, the Reserve Bank of India and banks are redefining terms to ensure long-term sustainability.

Challenges and regulatory framework

Even with an increase in credit card security and issuance, banks are confronted with higher offences related to credit card usage and supervisory problems.

The Reserve Bank of India (RBI) has raised risk-weight guidelines on unsecured borrowings, like credit card debts, to avert over-exposure to danger. This has compelled banks to reduce consumer lending and increase retail deposit growth. Thus, even though credit card usage continues to be strong, banks are reluctant to increase their portfolios too heavily.

Better technology, vision, planning and management is needed on the part of the banks and associated financial institutions to ensure that credit card usage is made more simpler and safer for users and abuse of such credit instruments is stalled.

What is the future outlook?

As the Indian credit card market continues to expand, banks will have to refine their strategies so that they can achieve growth without taking too much risk. As fee and reward schemes are also evolving rapidly in 2025, customers need to rethink spending in order to maximise rewards without embracing financial catastrophe.

Proper education in this regard is crucial. Users of credit cards need to clearly understand the business model of the banks offering these debt instruments, along with reasons how banks make money through these debt instruments: all this to primarily take informed credit card usage decisions.

Further, rapid growth of credit card portfolios of these behemoths such as HDFC Bank, SBI, Bajaj Finance and ICICI Bank stands evidence to the premium the bank product carries among Indian consumer finance. Besides this, the growth of digital payments and fintech technologies is also likely to further transform the credit card industry.

Banks are investing in technology to enhance customer experience and security, and this is increasingly making credit cards appealing to wider customer bases. Bank-fintech joint ventures are also becoming more visible, which is offering customers more customised and convenient services.

Given all these developments, aspirational card users must take card usage decisions after discussing their long-term financial goals with certified financial advisers. This is crucial because it will help them in understanding debt instruments better.

(Note: Using a credit card carries its own set of risks.)