Nearly A year after demonetisation, credit card usage has seen a sharp rise with outstandings rising 38.7 per cent during the 12 months ended September 2017. The total credit card outstandings — money spent by card holders and not repaid to the card company or bank — surged to Rs 59,900 crore at the end of September 2017, against Rs 43,200 crore in the same period last year, according to data released by the Reserve Bank of India (RBI) on Tuesday.
In fact, card outstandings have shot up by 77.74 per cent in the last two years, from Rs 33,700 crore in September 2015. The rise in card usage was more pronounced in the last 12 months as the banking system witnessed a shortage of cash during the November-January period of fiscal 2016-17, after the government and RBI withdrew Rs 500 and Rs 1,000 notes from circulation.
According to the RBI, the number of credit cards also rose sharply from 26.39 million in August 2016 to 32.65 million in August 2017. Banks normally charge an interest of 3.49 per cent per month (41.88 per cent per annum) on card outstandings. This means banks should earn an interest of close to Rs 2,090 crore on the outstanding amount of Rs 59,900 crore. Besides this, banks also charge 18 per cent GST on the amount. Interest rates are high on card outstandings as incidents of defaults are very high in the segment, said a bank official.
A recent survey indicated a clear increase in credit card usage among urban Indians over the last 12 months — 57 per cent of credit card holders reported they were using their credit cards more often now than they did a year ago. “Survey respondents reported various reasons for using their credit card. When asked to select all the ways they have used credit cards in the last 12 months, 59 per cent of the survey participants said that they used their credit cards to pay bills; 53 per cent said they used them for large purchases; and 45 per cent used them over other forms of payment to gain discounts and other rewards,” TransUnion Cibil said in the survey.
It said credit card usage varies demographically in India. The most common reason young adults in the age group of 18-24 years use credit cards over other forms of payment is because they don’t like to carry cash, as almost one quarter (24 per cent) noted in the survey, compared to 14 per cent of credit card holders aged 45 years and older.
Comparatively, the most common reason older adults (45 years and above) use credit cards is because it enables them to make the payment later (33 per cent). Only 13 per cent of card holders in the 18-24 years age group listed this as the primary reason for using credit cards.
A general perception is that making the minimum credit card payment each month will have a positive effect on their credit score. In fact, making only the minimum payment can have a negative effect on credit, as an increase in the current balance on the card over time is an indication of an increased repayment burden.