Why do banks continue to provide your credit card? This is the real reason

Banks in India have rapidly expanded credit card operations. As of early 2025, the unissued cards of nearly 110 million were already in the system, according to the Reserve Bank of India. This growth is driven by a high-profit business model that generates huge revenue from interest rates, fees and merchant transactions.

Additionally, banks are willing to issue credit cards because they provide them with stable income, helping to increase the number of customers and encouraging consumer spending. You need to always focus on checking credit utilization. Have a closer look at how this business model works and why banks bet on credit cards and are eager to provide you with these financial products.

Why do banks bet on credit cards?

Banks profit from credit cards in the form of interest fees, annual fees, reissuance fees and merchant fees. The interest expense on the overdue balance is very profitable because if the fees are paid in the grace period. Banks also make profits in the form of exchange fees for merchants in each transaction. This has led to a huge expansion of India’s credit card business.

Credit card consumption in India rose 10.8% to January 2025 due to this expansion ₹$1.84 trillion, but according to data provided by the Reserve Bank of India, it fell one after another.

How do bank credit cards attract consumers?

Credit cards provide users with several advantages. Some of them are: rewards programs, cash backs, incentives and discounts for air travel, and opportunities to build credit. Many Indians now use credit cards to build credit records and manage credit scores, which is crucial to ensuring future loans. So if you are able to maintain a consistent repayment history, using a card helps ensure you have the ability to earn more credit in the future.

Reward programs such as cashback and loyalty points are effective tools to encourage duplicate spending and maintain customer engagement. However, with the increase in the use and instances of abuse use, the Reserve Bank of India and banks are redefining terms to ensure long-term sustainability.

Challenges and regulatory frameworks

Even with improved credit card security and issuance, banks still face higher crimes related to credit card use and supervision issues.

The Reserve Bank of India (RBI) has proposed a risk-weight guide on unsecured borrowings such as credit card debt to avoid overexposure to danger. This forces banks to reduce consumer loans and increase retail deposit growth. Therefore, even if credit card usage remains strong, banks are reluctant to increase their portfolios significantly.

Banks and related financial institutions need better technology, vision, planning and management to ensure that users are made simpler, safer, and abuse such credit tools.

What are the future prospects?

As India’s credit card market continues to expand, banks will have to refine their strategies to achieve growth without taking too much risk. As the expense and rewards program also evolves rapidly in 2025, clients need to rethink spending in order to maximize rewards without accepting financial disasters.

In this regard, proper education is crucial. Credit card users need to have a clear understanding of the business model of the bank that provides these debt instruments and why banks make money through these debt instruments: all of which are primarily made with smart credit card usage decisions.

Furthermore, the rapid growth of credit card portfolios of these giants, such as HDFC Bank, SBI, Bajaj Finance and ICICI Bank, is a testament to the premiums provided by banking products in Indian consumer finance. In addition, the growth of digital payments and fintech technologies may also further change the credit card industry.

Banks are investing in technology to enhance customer experience and security, which increasingly enables credit cards to attract a wider customer base. Bank-enterprise joint ventures are also becoming more and more obvious, which provides customers with more customized and convenient services.

In view of all these developments, ideal card users must make card usage decisions after discussing their long-term financial goals with a certified financial advisor. This is crucial because it will help them better understand debt instruments.

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