Credit card outstanding has registered a 30.1 per cent rise to Rs 154,137 crore as of May 2022, making it the fastest growing segment in the personal loan category, as against a growth of 14.3 per cent at Rs 118,512 crore a year ago.
According to Reserve Bank of India data, monthly spending on credit cards is now above Rs one lakh crore. Card spending in May touched Rs 1.13 lakh crore as against Rs 1.05 lakh crore in April and Rs 1.07 lakh crore in March. The latest monthly spending is almost double when compared to the last year when, in April 2021, monthly spending was Rs 59,000 crore. In April 2020, credit card spending had plummeted to just Rs 20,765 crore as Covid pandemic hit the country and consumer spending declined steeply.
The rise in card spending is an indication that consumer spending has shot up in 2022 signalling the economic recovery. The rising consumer spending also led to a spike in retail inflation.
As much as 40 per cent of the card spending is through point-of-sale (PoS) based transactions and 60 per cent is through online purchases.
On the other hand, spending through debit cards was Rs 65,062 crore in April 2022 and Rs 64,052 crore in March. However, cash withdrawal through ATMs using debit cards was Rs 2.85 lakh crore in April 2022 as against just Rs 303 crore through credit cards. There were 7.52 crore credit cards and 92 crore debit cards as of April 2022.
Credit card spends are likely to rise further as the RBI had recently made an interesting proposition to make credit cards available through the UPI network on Rupay-based credit cards.
Mandar Agashe, Founder and MD of Sarvatra Technologies, said, “now a consumer who wants to pay using his credit card can do it via UPI, with credit card being a back-end instrument. It will not only accelerate 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 4,000. With this development the UPI ticket size is likely to go up somewhere around Rs. 3,000- 4,000, he said.
The RBI move will lead to a rise in acceptability at many merchants, people who ideally prefer to pay by credit card, can now easily do it via UPI. “Many merchants don’t have credit card PoS terminals especially in semi-urban and rural areas but most of them have UPI QR code-based acceptance. All such merchants will be able to accept credit payments via UPI,” Agashe said.
However, there are skeptics also. “We don’t want to be optimistic on this development as the success of UPI has been its convenience on the consumer side and high confidence to accept at the merchant side. This is likely to change when a credit transaction is proposed that has an MDR. It is still early days and we don’t think that this guideline addresses the concern of MDR on credit cards. Players are developing credit on UPI as well and wait to see adoption trends on either side,” said a Kotak Research report.
Meanwhile, on a year-on-year (y-o-y) basis, non-food bank credit registered a growth of 12.6 per cent in May 2022 as compared with 4.9 per cent a year ago, the RBI said. Credit to agriculture and allied activities grew by 11.8 per cent in May 2022 as compared with 9.4 per cent a year ago. Credit growth to industry accelerated to 8.7 per cent in May 2022 from 0.2 per cent in May 2021. Size-wise, credit to medium industries grew by 49.3 per cent in May 2022 as compared with 47.9 per cent last year. Credit growth to micro and small industries continued to perform well, registering accelerated growth of 33.0 per cent from 8.9 per cent, while credit to large industries recorded a growth of 1.9 per cent against a contraction of 3.1 per cent during the same period last year.