The use of credit for retail purchases is experiencing a significant surge, as evidenced by the substantial increase in credit card spending. As the economy rebounds from the challenges posed by the Covid-19 pandemic, credit card expenditures from April to August have surged by 70.36% compared to the previous year.
With a resurgence in consumer confidence, credit card spending during the five-month period ending August 2022 reached Rs 556,119 crore, surpassing the Rs 326,427 crore recorded in the same period the previous year. Among the 7.8 crore cardholders, monthly credit card spending has exceeded Rs one lakh crore. In August 2022 alone, card users spent Rs 112,358 crore, compared to Rs 77,733 crore in August of the previous year, and in July, it amounted to Rs 115,856 crore (compared to Rs 74,885 crore last year). This trend is expected to continue rising during the ongoing festive season.
According to RBI data, credit card users spent Rs 971,638 crore in the fiscal year 2021-22, a significant increase from Rs 630,414 crore the previous year. Notably, Rs 380,643 crore of this spending occurred through point-of-sale (POS) machines in 2021-22.
The data reveals that credit card usage has surpassed debit card usage, with debit card spending at Rs 730,213 crore in 2021-22—nearly Rs 240,000 crore less than credit card expenditures. Despite the substantial rise in credit card usage, concerns have been raised about the high annual interest rates of 38-42%, potentially leading cardholders into a debt trap if balances are carried forward consistently.
As of August 2022, credit card outstanding amounts to Rs 167,443 crore, compared to Rs 131,536 crore a year ago, according to RBI data.
Consumer confidence, on an upward trajectory since July 2021 following the subsiding impact of the Covid-19 pandemic, is reflected in increased spending. The RBI’s Consumer Confidence Survey indicates a positive shift, with households reporting higher current spending driven by essential expenditures. The survey also reveals optimistic expectations, as three-fourths of respondents anticipate a further increase in overall spending over the next year.
The recovery in India’s credit market is attributed to progressive government policies and active implementation by ecosystem players. Rajesh Kumar, Managing Director and CEO of TransUnion CIBIL, notes strong recovery across various credit products, including home loans (15% growth), auto loans (13% growth), consumer durable loans (61% growth), credit cards (32% growth), and personal loans (29% growth) year-over-year up to June 2022.
TransUnion reports a steady increase in the share of younger Indian consumers accessing new credit products. In June 2022, 33% of originations were among consumers aged 18 to 30, up from 22% in 2020. The report also indicates a growing appetite among lenders to extend credit access to a wider spectrum of consumers, with 32% of originations coming from below-prime borrowers.
Furthermore, the RBI’s card-on-file (CoF) tokenization norms, effective from October 1, aim to enhance the safety and security of card transactions. These norms prevent merchants, payment aggregators, and payment gateways from storing critical customer credit and debit card details, such as the three-digit CVV and expiry date, for online or mobile app purchases.