Outstanding credit card balloons 30%

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Credit cards outstanding recorded an increase of 30.1% to Rs 154,137 crore in May 2022, making it the fastest growing segment in the personal loan category, against a growth of 14.3% to Rs 118,512 crore a year ago.

According to data from the Reserve Bank of India, monthly spending on credit cards is now over Rs one lakh crore. Card spending in May hit Rs 1.13 lakh crore compared to Rs 1.05 lakh crore in April and Rs 1.07 lakh crore in March. The latest monthly expenditure is almost double compared to last year where, in April 2021, the monthly expenditure was Rs 59,000 crore. By April 2020, credit card spending had dropped to just Rs 20,765 crore as the Covid pandemic hit the country and consumer spending fell sharply.

The increase in card spending indicates that consumer spending has increased in 2022, signaling the economic recovery. Rising consumer spending also led to a spike in retail inflation.

Up to 40% of card spend is made through point-of-sale (PoS) based transactions and 60% through online purchases.

On the other hand, debit card spending was Rs 65,062 crore in April 2022 and Rs 64,052 crore in March. However, cash withdrawals through ATMs using debit cards were Rs 2.85 crore in April 2022 compared to only Rs 303 crore by credit cards. There were 7.52 crore credit cards and 92 crore debit cards in April 2022.

Credit card spending is expected to increase further as the RBI had recently made an attractive proposal to make credit cards available through the UPI network on Rupay based credit cards.

Mandar Agashe, Founder and Managing Director of Sarvatra Technologies, said, “Now, a consumer who wants to pay with their credit card can do so through UPI, with the credit card being a primary instrument. This will not only speed up digital transactions, but will also affect the average ticket size of the transaction. Currently, the average ticket size is Rs 1600 per transaction while that of a credit card is around Rs 4000. With this development, the UPI ticket size is likely to increase somewhere around Rs 3,000 to 4,000, he said.

The RBI movement will lead to an increase in acceptability among many merchants, people who ideally prefer to pay by credit card, can now easily do so through UPI. “Many merchants do not have credit card payment terminals, especially in semi-urban and rural areas, but most of them have UPI QR code-based acceptance. All of these merchants will be able to accept credit payments through UPI,” Agashe said.

However, there are also skeptics. “We don’t want to be optimistic about this development, because UPI’s success has been its convenience on the consumer side and its high confidence to accept on the merchant side. This is subject to change when a credit transaction is offered with an MDR. It is still early days and we do not believe that this guideline addresses the MDR’s concern over credit cards. Gamers are also building credit on UPI and waiting to see adoption trends on either side,” said a report from Kotak Research.

Meanwhile, on an annual basis (year-on-year), non-food bank credit recorded growth of 12.6% in May 2022, compared to 4.9% a year ago, the RBI said. Credit to agriculture and related activities increased by 11.8% in May 2022, compared to 9.4% a year ago. Industrial credit growth accelerated to 8.7% in May 2022 from 0.2% in May 2021. In terms of size, credit to medium industries increased by 49.3% in May 2022, compared to 47.9% last year. Growth in credit to micro and small industries continued to perform well, registering an accelerated growth of 33.0% against 8.9%, while credit to large industries recorded growth of 1.9% against a contraction 3.1% over the same period last year.

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