Credit cards are a gateway to other loans

The report also stated that a greater proportion of credit card borrowers tend towards other unsecured loans. "From the overall cards customer base, 2.76 crore graduated to other retail loans–21% availed of personal loans, followed by 18% who took consumer durables loans. About 14% availed of auto loans, 12% home loans, followed by two-wheeler loans and gold loans (6% each)," according to the report.

Once an individual comes into the credit ecosystem through credit card, banks find it easier to cross-sell them other loan products. Credit cards also offer access to credit without elaborate paperwork involved in case of other retail loans.

The size of the credit card industry as of November 2019 stood at 54.4 million (5.44 crore) cards. But the active cards in circulation were at 50.1 million (5.01 crore) as of December 2019. The portfolio of the industry stood at ₹1,24,390 crore ( ₹1.24 trillion) as of December 2019.

Spending on credit cards is growing faster than the growth in their numbers. For example, between December 2018 and December 2019, the portfolio outstanding grew by 44%, whereas active card users grew by 25%. "The new norms for social distancing, the paradigm shift to digital payments, better internet availability, and growth in the number of cards in circulation in tier II and tier III cities will propel the demand for credit cards. We anticipate that about one million active cards will be added over the next five-six quarters, despite the covid-19 crisis," said Navin Chandani, MD and CEO, CRIF High Mark in an email interview.

Earlier, two key factors boosted the demand for credit cards and incentivized spending. The first was sales by e-commerce players where users get heavy discounts on using credit cards. "A large section of the middle and lower-middle-income salaried consumers are tempted to use credit cards instead of debit cards (during online sales)," stated the report.

Second, demonetisation in November 2016 had a strong impact on card usage, as people were forced to use digital modes of payments due to the crunch of high-value denomination currency in the economy. The year-on-year (y-o-y) growth in credit cards usage stood at 44% in 2017 as against 31% in 2016 and 26% in 2015.

Tier II and tier III cities are now driving the growth in credit cards. While metros have 60% of the active card base as of December 2019, non-metros saw far higher growth. The y-o-y growth in tier II and tier III cities were 32% and 41%, respectively as of 2019.