BackHow credit card spends connected to consumer confidence
Trends suggest spending would improve more over time despite seeing some lag in February
PremiumConsumer spending using credit cards remained robust in January and February even after the festive season ended in a sign of growing consumer confidence and pickup in consumption, at least among more affluent customers.
Spending would improve more over time, trends suggest, though February numbers are a bit lower than that of January, analysts said. Aggregate credit card spending at point-of-sale (PoS) terminals and e-commerce websites were ₹69,113 crore in February, which, though lower than the ₹71,574 crore in January, is significantly higher than the ₹42,620 crore last February, Reserve Bank of India (RBI) data showed.
Bankers are seeing some traction in credit card usage, and card issuance is growing, they said. After the lull during the first two waves of the pandemic, the revival of credit card usage underlines the segment’s resilience to competition from options such as buy-now-pay-later (BNPL), experts said. BNPL offers borrowers the option to repay in 15 days on e-commerce websites, though some companies offer short equated monthly instalments (EMIs) as well.
“The recovery in economic activity and rising share of e-commerce transactions have enabled a strong recovery in spending. Increased economic activity will keep the momentum in spending buoyant. We believe that players such as SBI Card, ICICI Bank, and Axis Bank will continue to show a strong performance. We expect the strong recovery in HDFC Bank to continue," analysts at Motilal Oswal said in a 31 January note to clients.
Banks added 1.37 million new credit cards on a net basis in December, up 12% from the previous month, led by issuers such as HDFC Bank, ICICI Bank, and Axis Bank, the report said. This took the total credit card base to 68.9 million, a 14.2% increase from the previous year and the highest in 17 months. RBI publishes daily data on payments systems, but the bank-wise credit card data referred to in the Motilal report comes with a lag. Therefore, the figures for December are the latest available in the data series.
A few banks relaxed the stringent policies on credit card issuances introduced during the pandemic, leading to a more significant inflow of customers, others said.
“The general sense we are getting from issuers is that credit policy has been relaxed. The demand for credit, though, had remained high even during periods of policy tightening," said Adhil Shetty, chief executive of financial services marketplace BankBazaar.com. BankBazaar saw a big surge in its co-branded card sales, Shetty said.
Credit card spending has been resilient even after the festive season, but consumption revival is still some time away, said a senior banker. Considering that India’s credit card penetration is under 10%, spending is not an accurate gauge of overall consumption, largely limited to urban and semi-urban areas, he said. Credit card ownership in India stood at 3% of the population 15 years and older in 2017-18, according to the World Bank, but it would have improved to about 5-6% now, said an August report by PwC. This is quite lower than 66% in the US, 65% in the UK, and 30% in Brazil.
“It is true that cardholders are spending more than last year. At least that is what the initial signs tell us. However, there isn’t much of a pickup in discretionary spending even now and we hope it would improve in the coming months," said the banker cited above.
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