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Credit card use is rising rapidly in the country if the customer spends through this route are any indication. The value of credit card transactions tripled in the last three years to Rs 18.31 lakh crore during the year ended March 2024 from Rs 6.30 lakh crore in March 2021 with the economy coming out of the problems created by the Covid pandemic and consumer confidence increasing steadily over the last several quarters.
The value of credit card transactions rose from Rs 6.30 lakh crore to Rs 9.71 lakh crore during the year ended March 2022 and Rs 14.32 lakh crore as of March 2023, according to Reserve Bank of India data. The monthly spends by card users are now above Rs 1.50 lakh crore and remained at Rs 164,459 crore in the month of March this year. It was Rs 72,319 crore in March 2021.
The number of credit cards issued by banks also rose rapidly to 10.18 crore as of March 2024 from 8.53 crore in March 2023, 7.36 crore in March 2022 and 6.20 crore in March 2021, RBI data shows.
However, credit card outstanding has gone up to Rs 267,979 crore as of May 2024 as against Rs 161,512 crore in 2022. Card outstanding is the amount due from customers after the interest-free period offered by banks.
The credit card segment is dominated by private banks. HDFC Bank is the top card issuer with 2.11 crore credit cards followed by State Bank of India with 1.91 crore cards, ICICI Bank 1.7 crore cards and Axis Bank 1.43 crore cards. HDFC Bank reported point of sale (POS) transactions of Rs 16,251 crore and e-commerce card use of Rs 25,155 crore for the month of May 2024, as per the RBI data.
In November 2023, the RBI had increased risk weight on the exposure of banks towards consumer credit, credit card receivables and non-banking finance companies (NBFCs) by 25 per cent up to 150 per cent. The move was aimed to address build-up of any risks in these segments. “Even as inquiry volumes remain robust, the impact of increase in risk weights on certain segments of consumer credit pulled down the rate of growth in overall consumer credit, especially personal loans and credit cards,” the RBI’s FSR report said. What have lured customers to the credit card segment are incentives like rewards on higher spending, loan offers and lounge benefits. “Customers should realise that if they keep card dues beyond the interest-free period, they end up paying an interest rate of up to 42 per cent in some cases. It will put them in a debt trap,” said a bank official.
In FY24, out of Rs 18.31 lakh crore credit card transactions, as much as Rs 6.51 lakh crore was through POS transactions involving merchants and shops. The rising card use is an indication of the increasing consumer spending, analysts said. For the year ahead, consumer confidence remained at elevated level in the optimistic terrain though it declined, albeit marginally, due to relatively tempered sentiments on the general economic situation and employment prospects, the RBI’s consumer confidence survey released earlier in June said.
“Consumers expect higher rise in overall spending over the next one year vis-à-vis the previous survey round; more respondents expect an increase in both essential and non-essential spending,” the survey said.
The RBI recently directed credit card issuers to give customers an option to choose from multiple card networks. The regulator has restricted card issuers from entering into any kind of exclusive arrangements with a card network for the issuance of credit cards. The move is beneficial for customers as they will get the freedom to choose from multiple card networks.
