Credit card additions and record loans point to consumer recovery

Credit card additions and spending grew at the fastest pace in May in recent quarters, underscoring the waning impact of Covid-induced disruptions on consumer habits, as growing numbers of urban Indians took long vacations and bought expensive discretionary items after being virtually locked out for two summers in a row.

The banking sector added 1.7 million cards in May, the highest in 27 months. Outstanding credit card loans were the highest ever, crossing the ₹1.54 lakh-crore mark.

“The latest data reveals that credit card spending has been very strong, reaching an all-time high (up 8% MoM) in May 2022,” said Suresh Ganapathy, Managing Partner, Macquarie Capital. “Rebound rates in value are also at their lowest levels in three years. These data points indicate that the retail economy is strong.”

Certainly, a reversal in rate trends could have an impact on spending on borrowed funds. India’s central bank raised rates twice in a month from early May to contain inflation.

“However, with interest rates set to rise rapidly over the next few quarters, we need to see if current trends are sustainable,” Ganapathy said.

The latest trend in credit card spending patterns indicates growing consumer confidence.

Credit card spending soared in both volume and value among popular retail payment channels in April. The value rose by nearly four-fifths in April to ₹1.05 crore lakh, against a 22% growth in NEFT transactions and a 16% growth in debit card spending.

Even in terms of volume, credit card spending grew 42%, compared to 30% growth in NEFT transactions and 16% growth in debit card spending. The only exception was UPI transactions, which more than doubled over the period.

Credit card outstanding, or the amount owed to banks after the end of the credit period, jumped by about a fifth to ₹1.54 lakh crore, from ₹1.28 lakh crore in the same period one year ago. Credit card spending grew by 8% on a sequential basis and 118% year-on-year to reach ₹1.14 lakh crore in May 2022.

According to an analysis of

, and had the strongest spending growth sequentially. American Express reported a 2% drop in spending from April.

“Spending remained strong and continued its good momentum, driven by the growing share of e-commerce transactions, which will keep spending growth at a sustained level,” said Nitin Aggarwal, Head of BFSI Research,

. “Players like , and will continue their strong performance as they witness a strong recovery that is expected to continue.”

HDFC Bank became the largest acquirer with 385,000 new cards, followed by Axis Bank, ICICI Bank and SBI Cards which sold over 200,000 cards each. Kotak Mahindra Bank also sold 181,000 new cards.