Outstanding Credit Card Balloons 30%

According to Reserve Bank of India data, monthly credit card spending is now over Rs one lakh crore. Card spending in May reached Rs 1.13 lakh crore against 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 when in April 2021 the monthly expenditure was Rs 59,000 crore. In April 2020, credit card spending fell to just Rs 20,765 crore as the Covid pandemic hit the country and consumer spending plummeted.

The rise in card spending is an indication that consumer spending has picked up in 2022, signaling economic recovery. Rising consumer spending also led to a spike in retail inflation.

A full 40 percent of card spend is through point-of-sale (PoS)-based transactions, and 60 percent 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, ATM cash withdrawals using debit cards were Rs 2.85 lakh crore in April 2022 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 spending is likely to rise further as the RBI has recently made an interesting proposal to provide credit cards through the Rupay-based credit card UPI network.

Mandar Agashe, founder and director of Sarvatra Technologies said, “now a user who wants to pay with his credit card can do so through UPI, with the credit card as a secondary instrument. This will not only speed up digital transactions but also impact the average ticket size per transaction.” Currently, the average ticket size is Rs 1,600 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 to somewhere around Rs. 3000-4000, he said.

RBI’s move will lead to increased acceptance at many merchants, people who ideally prefer to pay by credit card can now easily do so through UPI. “Many merchants do not have PoS terminals for credit cards, 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 through UPI,” Agashe said.

However, there are also skeptics. “We do not want to be optimistic about this development as the success of UPI is the convenience on the part of the users and the high confidence of adoption on the part of the merchant. This is likely to change when a credit transaction that has an MDR is offered. It is still early days and we do not believe this guidance addresses the MDR concern for credit cards. Players are also developing UPI credits and waiting to see the adoption trends from both sides,” said a Kotak Research report.

Meanwhile, year-on-year (y-o-y) non-food bank credit registered growth of 12.6% in May 2022 compared to 4.9% a year ago, RBI said. Credit to agriculture and related activities grew by 11.8% in May 2022 compared to 9.4% a year ago. Credit growth to industry accelerated to 8.7% in May 2022 from 0.2% in May 2021. In terms of size, credit to medium industries grew by 49.3% in May 2022 compared to 47.9% 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 registered a growth of 1.9 per cent against a contraction of 3.1 per cent hundred during the same period last year.