After October spurt, credit card spends moderate in November

The volume of card transactions also rose to 3,200 lakh in October from 2,970 lakh in September but declined to 2,739 lakh in November. The number of credit cards also jumped to 960 lakh as of November 2023 as against 806 lakh a year ago, according to RBI data.

Credit card transactions, which are basically unsecured credit, declined after the festive season neared its end, which can be seen by the sequential drop in online payments. However, the point of sale (PoS) transactions have witnessed an increase.

“The credit card segment might see some moderation after the RBI increased the risk weights,” said a CareEdge Ratings report.
On November 16, the RBI increased the risk weights on the exposure of banks towards consumer credit, credit card receivables and non-banking finance companies (NBFCs) by 25 per cent up to 150 per cent. The move is aimed at discouraging lenders from aggressively lending to these segments of loans. The central bank increased the risk weights on credit card receivables by 25 percentage points to 150 per cent and 125 per cent for commercial banks and NBFCs.

On October 6, RBI Governor Shaktikanta Das cautioned banks and NBFCs about the high growth in the personal loan segments for any signs of stress. The RBI said certain components of personal loans are recording a high growth. In credit card accounts, the amount spent is billed to the card users through a monthly statement with a definite due date for repayment.

Banks give an option to the card users to pay either the full amount or a fraction of it, i.e., the minimum amount due, on the due date and roll over the balance amount to the subsequent months’ billing cycle. In case of roll-over, banks charge interest rates as high as 38 to 42 per cent on outstanding dues.

A credit card account will be treated as a non-performing asset if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the payment due date given in the bill. It will also affect the credit score of the card holder.

The outstanding debt of over Rs 2.44 lakh crore underscores the power of credit cards in enabling individuals to fulfil their needs and wants, said an industry veteran. Spending has been high in contact-intensive sectors such as travel, hospitality, and tourism, where historically credit card has been the preferred mode of payment given the large ticket size of payments. Additionally, non-discretionary spending is also being routed through credit cards primarily due to the innovative reward structure followed by various banks.

Defaults in the credit card segment are rising. Gross non-performing assets (GNPA) in the credit card segment of banks rose by Rs 951 crore to Rs 4,073 crore in the fiscal ended March 2023 from Rs 3,122 crore in the year ended March 2022, according to the RBI.

Meanwhile, the personal loans segment (the largest segment with a 34 per cent share) witnessed a robust growth of 30.1 per cent to Rs 50.56 lakh crore for November 2023 boosted by the impact of the HDFC merger, festival demand, growth in credit card outstandings, other personal loans, housing loans and vehicle loans.

Credit growth in the personal loans space continues to also be driven by miniaturisation of credit, increased use of credit bureaus for faster decisions and an increase in e-commerce transactions. Within the personal loans segment, all major sub-segments witnessed strong demand during the month, CareEdge said.