Credit Card Spends Are Back At Levels Last Seen Before Covid-19 Outbreak
Spends on credit cards are back at levels last seen in March, according to monthly data available with the Reserve Bank of India.
According to the regulator’s monthly bulletin, banks reported Rs 50,311 crore worth spends in August, compared with Rs 50,574 crore in March. On a year-on-year basis, credit card spends were lower than the Rs 60,011 crore reported in August 2019.
Outstanding credit card loans for the banking system as on July 31 stood at Rs 1.04 lakh crore, as compared with Rs 1.08 lakh crore as on March-end.
The rise in total spends is owing to higher spends being reported at point-of-sale terminals across the country as lockdown restrictions are being lifted.
As a majority of the country had been under lockdown for months, spends at point-of-sale terminals at restaurants, hotels and shopping malls had fallen significantly. While digital use of cards still outpaces physical swiping, the amount of PoS transactions are steadily rising since May.
As per data available in the bulletin, out of the total spends reported in August, Rs 21,001 crore worth spends were through PoS terminals, while Rs 29,310 crore were through other means, including digital spends. In April, the banking system reported PoS transactions worth Rs 8,052 crore and other credit card transactions worth Rs12,713 crore.
According to Sanjeev Moghe, executive vice president and head of cards and payments at Axis Bank Ltd., the system is witnessing a rise in credit card spends on smaller value purchases.
“While earlier it was true that there were clear demarcations like a customer would use their credit card only to purchase high value items and rely on their debit cards or mobile phones to make small value payments, we’re seeing a merging of these categories,” Moghe said.
The rise in digital spends over PoS is also a result of fewer charges being levied on credit cards now.
“Earlier, customers would be charged a convenience fee of 2% or so on utility bill payments using a credit card,” said Parijat Garg, an independent consultant on digital lending. “But with the lockdown, utility providers have been steadily removing this fee, which makes use of credit cards easier for customers.”
The rise of low value transactions on credit cards, however, shouldn’t be seen as a cause for concern, Garg said. This is merely a reflection of customers using the credit card as a transaction tool, rather than a credit product, which is the intended use.