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Volume up but value of card transactions falls to 9-month low

The decline in November came even as the amount spent at PoS terminals grew consistently this calendar from Rs 33,230 crore in January 2016 to Rs 51,116 crore in October 2016.

Written by Sandeep Singh | New Delhi | Published: December 22, 2016 5:35 am
demonetisation, online payment, card transaction, online transaction, digital payment, card swipe, currency ban, note ban, SBI, POS system, indian express news, banking, india news, business news Even as spend on cards fell in November, because of the cash crunch, Ghosh said, there has been an increase in mobile banking transactions by around 10 per cent over the previous month and it rose to Rs 1,24,500 crore in November.

WHILE most banks have reported an increase in the number of transactions involving swipe-cards since demonetisation was announced on November 8, there has been a sharp decline in the total value of these transactions. Reflecting a dip in consumption, the use of debit and credit cards at point of sale (PoS) terminals fell to a nine-month low in value terms in November and witnessed a sharp decline of 31 per cent over that in the previous month.

According to data released in an SBI Research report on Wednesday, the aggregate of debit and credit card transactions at PoS fell to Rs 35,240 crore in value terms for November 2016 which is the lowest since February 2016 when the aggregate spend on PoS terminals amounted to Rs 33,600 crore.

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The decline in November came even as the amount spent at PoS terminals grew consistently this calendar from Rs 33,230 crore in January 2016 to Rs 51,116 crore in October 2016. In fact even in December (until Dec 13, 2016) card spend on PoS remained muted and amounted to Rs 18,130 crore.

Speaking to The Indian Express, Soumya Kanti Ghosh, group chief economic adviser of State Bank of India said, “Decline in consumption could be one of the possible reasons as people were uncertain about spending after the announcement was made. Even December figures look down and we need to see how it can be improved because it could otherwise have an impact on growth.”

Even as spend on cards fell in November, because of the cash crunch, Ghosh said, there has been an increase in mobile banking transactions by around 10 per cent over the previous month and it rose to Rs 1,24,500 crore in November.

However, in line with a decline in aggregate spend at PoS, the average transaction at a PoS also fell from Rs 2,229 in October to Rs 1,714 in November.

Devendra Pant, chief economist at India Ratings said, “Post delegalisation of the high-denomination old currency, there was an expectation that spend through credit and debit cards would grow but the data shows that there has been a big impact on consumption.”

While the decline is sharp in November this year after the festive month of October, the spend in the three months between October and December 2015 hovered between Rs 35,000 crore and Rs 36,000 crore and there was no decline in spend post the festive month.

A senior official with a leading private sector bank said that while the bank has witnessed a rise in the number of transactions on its cards, there has been a decline in value terms. “We have noted that because of the cash problem, people are using their debit and credit cards for low-ticket items but there has been a sharp decline in spends on big-ticket items such as purchase of consumer durable items. People are deferring their large ticket purchases and it is leading to a slowdown in the near term,” he said.

While there are 15.1 lakh PoS machines in the country, the SBI report pointed that there is a need of additional 20 lakh more terminals if digitisation has to gain traction. The report further said that the size of digital banking needs to double from the current level so as to bridge the gap of currency in circulation.

“The current size of digital banking (including credit card + debit card transaction through PoS terminals, transaction through Prepaid Payment Instruments like m-Wallet, PPI cards etc and mobile banking) is around Rs 1.7 lakh crore. This size has to increase from the current level to at least Rs 3.5 lakh crore (which is a conservative estimate of the gap between the actual currency in circulation and required currency in circulation),” said the report.

In fact, banks have seen a sharp rise in demand for PoS terminals since demonetisation. While an HDFC Bank official in November said that their daily request for terminals is now more than what they received for earlier months, ICICI Bank and Axis Bank officials also said that they have witnessed a sharp rise in demand for PoS terminals.

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  1. Santosh Mishra
    Dec 22, 2016 at 4:55 am
    people are busy doing whatever they do by the extra black or white cash than cashless.lt;br/gt;Go for real indicator of businesses than counting transactions in one particular way.
    1. C
      Dec 23, 2016 at 3:58 am
      LOSS OF 5184 MILLION RUPEES EVERY YEAR IN DELHIlt;br/gt;ALONE DUE TO UNACCOUNTED CASH TRANSACTION:lt;br/gt;AND 25920 MILLION RUPEES BLACKMONEY GENERATEDlt;br/gt;BY PAYING RENT IN CASHlt;br/gt;According to the Delhi government there are 135 urbanised villages in Delhi (lt;br/gt;lt;br/gt;f/List of urbanised villages.pdf?MOD=AJPERESandlmod=191127038) tilllt;br/gt;2010. A news report in 2015 said that SDMC is planning to declare 35 morelt;br/gt;villages as urbanised villages. We can safely ume that there are 150lt;br/gt;urbanised villages in Delhi. The urbanised villages offer a comparativelylt;br/gt;cheaper rented accommodation to a large number of potions. However, inlt;br/gt;maximum number of cases there is no rent agreement. In almost all cases therelt;br/gt;is no rent receipt and the rent is taken in cash. This unaccounted cashlt;br/gt;transaction allows the house owners to evade the income tax. If we do a roughlt;br/gt;calculation, then we will find out the loss of income tax revenue to thelt;br/gt;government.lt;br/gt;In these 150 villages, if there are 2000 houses/rooms/flats on rent. Then therelt;br/gt;are 300,000 houses on rent. The rent varies from 4000 to 20000. On an averagelt;br/gt;we can say that the rent is 9,000. The annual value of rent would belt;br/gt;32,40,00,00,000. To keep the estimate very conservative, let us say that twentylt;br/gt;percent of the house owners show their income and pay the income tax. Thenlt;br/gt;the unaccounted rental income comes to 25,92,00,00,000. Now let us umelt;br/gt;that even all of them fall only in the 20% of income tax bracket, the total taxlt;br/gt;would be 5,18,40,00,000 (5184 million Rupees,,i.e. 518 crores).lt;br/gt;Even after the demonetization and the digital payment push, the maximumlt;br/gt;numbers of house owners are still demanding rent in cash. The government islt;br/gt;losing a large amount of revenue due to this unaccounted cash transaction. Nowlt;br/gt;given the digital push, the government should do something to bring theselt;br/gt;transactions under tax net. The government can do a house survey and find outlt;br/gt;how many houses are on rent and then fix an average tax. There can be manylt;br/gt;more methods. The requirement is of political will. And I think this is inlt;br/gt;abundance in this present government.lt;br/gt;The landlords are still demanding the rents in cash and not ready to accept anylt;br/gt;other mode of payment. Once again the creation of black money is on. Modi jilt;br/gt;please do something about this??????????????
      1. Deepak Kasar
        Dec 23, 2016 at 8:39 am
        Very funny article, from Indianexpress. I loved the joke - called analysis - in this. lt;br/gt;A school-kid, is also judged after 1 year's performance. lt;br/gt;How you guys trying to judge entire 150 year's old economy in 50 days ???lt;br/gt;lt;br/gt;This is not about success or failure. It is about well being in long run.lt;br/gt;And when we say long run, you have to be patient enough for long time, before giving any opinion.lt;br/gt;lt;br/gt;Not like, yesterday some bank official said and today I said Indian economy is a failure. That very hilarious
        1. K
          Dec 22, 2016 at 1:03 am
          No rocket science to under why its down..lt;br/gt;lt;br/gt;1) All corrupt business man who use to spend on cards and earn on cash..... busy depositing the cash.lt;br/gt;lt;br/gt;2) rich kids are given cash by parents.....stead of cards to ease their transactions.lt;br/gt;lt;br/gt;3) prices are coming down as demand is less.....people are waiting not spending hoping it will come down more and then they buy it.lt;br/gt;lt;br/gt;lt;br/gt;anyway this is temporary slowly down... 2008 recession.....everything came down........but after that it went up in double speed.... now people are not spending because some of cash crunch......but starting jan/feb.....this will speed up......
          1. K
            Dec 26, 2016 at 3:31 pm
            The article is excellent in giving the economic facts of our country, post demonetisation. However, wish it was done in a simpler language and a summary was needed for the 'non economist' readers to grasp the reality! lt;br/gt;Are we heading for a slowdown? Not sure, but the fall in purchase is a symptom of slow down. What is worse is the inflation despite people's purchasing power going down, unemployment rising!
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