Credit card outstanding soars by 27%

Representative image.

Reserve Bank of India (RBI) data for September 2022 ranked credit cards as one of the fastest-growing segments in the personal loan category, touching the Rs 1.70 lakh crore mark from Rs 1.31 lakh crore in September 2021.

That compares with a marginal growth trend when in August it reached Rs 1.68 lakh crore against Rs 1.62 lakh crore in July and Rs 1.61 lakh crore in June.

Analysts said that the increase in outstanding amounts signals more consumer spending, which in turn indicates an economic rebound from the pandemic days when credit card spending fell to Rs 20,765 crore in April 2020.

“Due to the pandemic, lending was not happening as people were not working to their full capacity. Now, there is a lot of catch-up for banks to do as spending power is increasing,” said Sanjay Agarwal, senior director, CareEdge Ratings.
A report by PricewaterhouseCoopers (PwC) explained that the post-pandemic credit card space in India has undergone considerable change and is evolving constantly.

“With the emergence of e-commerce, adoption of contactless payments and changes in the value proposition, and owing to the ongoing and upcoming developments in the space, the credit card industry is expected to grow at almost thrice the speed in the next four years,” the report said.

Is credit card becoming the new payment system?

The PwC report stated that the credit card industry in India witnessed a compound annual growth rate (CAGR) of 20 per cent in the last five years. “The number of credit cards crossed 78 million in July 2022. Moreover, in May 2022, the overall credit card spend reached its highest-ever number of INR 1.13 lakh crore,” the report said.

Ramgopal Subramani, chief strategy officer at Karza Technologies, a Mumbai-based firm that uses tech to help lenders minimise bad debt, said that credit cards have started to penetrate tier-three cities. “People are coming ahead to spend more. Credit cards have facilitated this spending pattern,” Subramani said.

RBI data for October 2022 showed that the total credit card spending through online transactions, points of sale (POS) and other mediums touched Rs 1.29 lakh crore.

“Nowadays 90 percent of card transactions in tier three cities are through credit cards. Various easy and early loan programmes have helped people borrow more money which has directly helped banks’ finances,” Subramani added.

Creditwise, a non-bank financial company (NBFC), is working on a credit card for small-scale businesses and services. Ayush Gumdalwar, marketing executive at Creditwise, explained that a pump-up in credit card demand in the market is clearly visible.

Will credit card be NPAs for banks?
The RBI in July 2022 issued new guidelines called Reserve Bank of India (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022, which provide a complete set of instructions primarily to card-issuers about issuing credit cards, among other things.

The guidelines indicate which banks may engage in the credit card business. Most scheduled commercial banks (SCBs) with a minimum net worth of Rs 100 crore can issue credit cards. The exception is regional rural banks (RRBs), which need to collaborate with other banks to do so.

"Credit card debt is considered "bad" debt because of its high-interest rates and low minimum payments, and the fact that it isn’t used to buy appreciating assets," wrote Erin El Issa, a credit card expert with NerdWallet, a financial consulting website.

“Post-COVID, the job market saw a boom and people earning and spending more. This led to positive growth in the spending market. But considering global headwinds in the financial and job markets, there is a possibility for failure in credit card loan repayment in future,” said Akshay Kadam, senior accountant at Prophetic Business Solutions, a Mumbai-based accounting firm.