Credit card arrears rose 30.1 per cent to Rs 154,137 crore as of May 2022, making it the fastest growing segment in the personal debt segment, compared to a growth of 14.3 per cent at Rs 118,512 crore a year ago.
According to the Reserve Bank of India, the monthly expenditure on credit cards is now over Rs 1 lakh crore. Card spending reached Rs 1.13 lakh crore in May as against Rs 1.05 lakh crore in April and Rs 1.07 lakh crore in March. In April 2021, when the last monthly expenditure was almost double that of last year, the monthly expenditure was Rs 59,000 crore. In April 2020, the cost of credit cards fell to just Rs 20,765 crore as the Kovid epidemic hit the country and consumer spending fell sharply.
The increase in card costs is an indication that consumer spending has increased, indicating an economic recovery in 2022. Rising consumer spending led to a spike in retail inflation.
About 40 percent of card costs are through point-of-sale (PoS) based transactions and 60 percent through online purchases.
On the other hand, debit cards cost Rs 65,062 crore in April 2022 and Rs 64,052 crore in March. However, the amount of cash withdrawn from ATMs using debit cards was Rs 2.85 lakh crore, compared to only Rs 303 crore through credit cards. As of April 2022, there were 7.52 crore credit cards and 92 crore debit cards.
Credit card costs could rise further as the RBI recently made an attractive offer to make credit cards available through the UPI network in Rupay-based credit cards.
Mandar Agash, founder and MD of Everywhere Technologies, said, “Now a customer who wants to pay using his credit card can do so through UPI, a credit card is a back-end device. This will not only accelerate digital transactions but also affect the average ticket size of the transaction. ”Currently, the average ticket size is Rs 1,600 per transaction and around Rs 4,000 per credit card. With this development, UPI ticket size is around Rs 3,000-4,000, he said.
The move by the RBI will increase acceptance to many merchants, who ideally prefer to pay by credit card, now they can easily do so through UPI. “Many merchants do not have credit card PoS terminals 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, ”said Agashe.
But there are doubts. “We do not want to be optimistic about this development because the success of UPI is for the convenience of the consumers and the high confidence of the merchants. This may change if a credit transaction that has an MDR is proposed. It’s still early days and we don’t think this guide addresses MDR concerns on credit cards. Players are also developing credit at UPI and looking forward to seeing adoption trends on both sides, ”the Kotak research report said.
Meanwhile, on a year-over-year (year-on-year) basis, non-food bank credit grew by 12.6 per cent in May 2022 compared to 4.9 per cent a year earlier, the RBI said. In May 2022, credit to agriculture and ancillary activities increased by 11.8 percent from 9.4 percent a year earlier. Debt growth in the industry accelerated to 8.7 percent in May 2022 from 0.2 percent in May 2021. In terms of size, debt in medium industries increased by 49.3 percent in May 2022 compared to 47.9 percent last year. Credit growth in small and medium-sized enterprises has continued to perform well, recording accelerated growth of 8.9 per cent to 33.0 per cent, while credit to large industries recorded a growth of 1.9 per cent as against a contraction of 3.1 per cent in the same period last year.