The Indian middle class appears to be on a spending binge. Credit card spends topped Rs 1.16 trillion in July, a 6.5 per cent growth month-on-month and 54 per cent year-on-year. Spends have stood at Rs 1 trillion for five running months now. Fresh card issuances were at 1.53 million in July and crossed the 80-million mark. led the issuer pack with 344,364 credit cards added in July and its base stood at 17.94 million, followed by Axis Bank with 227,614 cards (9.93 million cards), and with 218,933 cards (14.5 million).

These run rates on card spends and issuances come despite the fact that the better part of two years and more has been derailed by the pandemic and its secondary effects. Can it be concluded that the cards business — which is an unsecured one — is immune to pay cuts and job losses seen during this period? If so, why so?

Senior retail bankers identify three key factors behind the plastic buoyancy.

One is the comfort levels set in online payments. “Ticket sizes on (Unified Payments Interface) transactions may be low, but it did bring about a cultural shift,” said a senior banker. While there is a debate on free pricing, the reality is that it made a whole lot of customers comfortable with digital banking. Another build-up was the maturing of credit-bureau data — card issuers came to have a larger pool of histories in which to tap — ranging from home, auto, gold to personal loans. Plus, the advent of analytics to data-mine this information.

The other aspect is that while in-store shopping and holiday spending crashed during the pandemic, e-commerce took off in a big way.

The Reserve Bank of India’s (RBI’s) payment numbers for Q1FY22 show that credit card volumes and value stood at 2.02 billion and Rs 8.77 trillion, respectively. The number of credit-card transactions at PoS (point-of-sale) was 305.83 million and for e-commerce it was 302.13 million. In terms of value, transactions were Rs 1,040.03 billion at PoS and Rs 1,770 billion at e-commerce via credit cards. According to Worldline India’s last India Digital Payments Report: “Even though credit cards’ volume at PoS and e-commerce is nearly equal, the value of e-commerce transactions is significantly higher compared with the same at PoS. This is in line with the general trend of transactions moving from the physical to the digital space.”

And then you have the improvement in credit quality — even though this may seem hard to believe initially. The Financial Stability Report of June 2022 (FSR: June 2022) shows an improvement in delinquency levels across all categories of consumer credit. For state-run banks, delinquencies fell to 4.45 per cent in March 2022 from 4.90 per cent over the year; it was 1.40 per cent for private banks (2.01 per cent), 2.34 per cent for non-banking finance companies (including housing finance companies), and 2.26 per cent for fintechs (3.3 per cent).

This fall in delinquencies across the retail book is now reflected in the improved confidence shown by card issuers as well. It can only be good for leading card issuers as digital lenders, pre-paid card issuers (who were playing on regulatory arbitrage by issuing quasi-credit cards), and the buy-now-pay-later (BNPL) entities are now off the park after the RBI’s crackdown.

The India Brand Equity Foundation under the Ministry of Commerce and Industry said the e-commerce market will hit $350 billion in 2030. That’s more than double from the current levels. The e-retail market is seen at $120-140 billion in FY26. It was at $25.7 billion in 2020. Comparatively, the Indian retail market at $810 billion currently is seen at $1.4 trillion in 2026 and $1.8 trillion in 2030. Clearly, both in-store and online payments will be on fire; and the cards business must be seen as part of this wider consumer plot.

It can get even bigger if the RBI were to allow NBFCs to issue credit cards. Eighteen years ago, the central bank’s circular of June 7, 2004, said that the prerequisite for entering this business was a minimum net-owned fund of Rs 100 crore. The circular did not place any regulatory ban on NBFCs issuing credit cards. The RBI has of late said that it will re-examine this idea. The immediate trigger for the renewed interest in this area is that the circular of 2004 was re-read along with the observations in the RBI’s “Report of the Working Group on Digital Lending through Online Platforms and Mobile Apps” after it was released for public comments in November last year.

India has always been a tough market for credit cards. Outside of banks, a few monoline issuers — standalone firms whose cards business is not within the fold of banks — tried their luck using data analytics — GE Capital and Capital One in the mid-1990s. GE Capital teamed up with the State Bank of India; Capital One had many failed attempts — a joint-venture with Canara Bank — and later tried the same for nearly two decades with the Life Insurance Corporation.

All this is history now.

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