Credit card spends jump 70% in five months on retail buying

With consumer confidence reviving, credit card spends shot up to Rs 556,119 crore during the five-month period ended August 2022 as against Rs 326,427 crore in the same period of last year. Customers – with a card base of 7.8 crore — are now spending over Rs one lakh crore every month using their credit cards. Card users spent Rs 112,358 crore in the month of August 2022 as against Rs 77,733 crore in August last year while in July it was Rs 115,856 crore (Rs 74,885 crore last year). It’s set for a further rise in the ongoing festive season.

According to RBI data, credit card users spent Rs 971,638 crore in fiscal 2021-22 as against Rs 630,414 crore a year ago. Of this, as much as Rs 380,643 crore was spent through POS (point of sale) machines of merchants in 2021-22.

Customer spending through credit cards has already overtaken debit card usage. In 2021-22, debit card usage was Rs 730,213 crore, nearly Rs 240,000 crore lower than credit card spends. “The rise in credit card usage is significant as the interest rate charged by credit card issuers is around 38-42 per cent per annum. If you carry forward the balance to the next billing cycle, the outstanding will shoot up and the card holder will get into a trap if it’s carried forward again and again,” said a banking source.

Credit card outstanding as of August 2022 was Rs 167,443 crore as against Rs 131,536 crore a year ago, according to RBI data.

Consumer confidence has been on a recovery path since July 2021 after the impact of the Covid-19 pandemic waned. Though the RBI’s current situation index (CSI) remained in negative terrain, it improved in the latest RBI survey round on the back of better sentiments on general economic situation and spending. Most households reported higher current spending, which was mainly driven by essential spending. Nearly three-fourths of the respondents expect further rise in overall spending over the next one year and another 20 per cent expect it to remain around the prevailing levels, says the RBI’s latest consumer confidence survey.

“Supported by progressive government policies and active implementation by ecosystem players, momentum has returned to India’s credit market. Retail credit portfolio balances continue to show strong recovery across products, with home loan balances growing by 15 per cent, auto loans by 13 per cent, consumer durable loans by 61 per cent, credit card by 32 per cent, and personal loan balances by 29 per cent, year-over-year to June 2022,” said Rajesh Kumar, Managing Director and CEO of TransUnion CIBIL.

“The Indian credit environment has shown signs of strong recovery, with improvement in credit activity as well as positive lender sentiment,” Kumar said. “Credit performance has consistently improved year-over-year, with generally lower delinquency levels. The time is ripe for lenders to identify many credit-eligible consumers across India’s geography and reach them to provide easy and quick access to credit while delivering a positive experience.”

According to TransUnion, the share of younger Indian consumers opening new credit products has grown steadily over the last two years. In June 2022, one third of originations (33 per cent) were among consumers aged 18 to 30, having increased from 22 per cent in 2020. Simultaneously, 32 per cent of originations were from below-prime borrowers as compared to 28 per cent in Q2 2019, indicating greater lender appetite to expand credit access to a wider spectrum of consumers.

In June 2022, 23 per cent of originations were among consumers in metro areas, compared to 25 per cent in 2019 previously, with the percentage of originations in non-metro areas having increased by two four percentage points over the last three years.

Meanwhile, from October 1, the RBI’s card-on-file (CoF) tokenisation norms have kicked in, which aim at improved safety and security of card transactions. For any purchases done online or through mobile apps, merchants, payment aggregators and payment gateways will not be able to save crucial customer credit and debit card details such as three-digit CVV and expiry date.