Raising concerns of potential defaults, credit card spending by Indians surged to a record high.
Surge In Credit Card Spendings
It appears that the indebted households stepped up their borrowing spree ahead of the festive season that kicked off this month.
Under this update, the amount transacted through cards rose to an all-time high of 1.48 trillion rupees ($17.8 billion) in August.
Which is up from July’s 1.45 trillion rupees, as per the latest data by the Reserve Bank of India.
During August, 9.13 crore credit cards were used as against 8.9 crore in July, which implies an increase of 2.5 percent, as per the media report.
For the same period, the Credit card spending increased by 32.2 percent on a year-on-year (YoY) basis and 2.7 per cent month-on-month (MoM).
The point-of-sale transactions increased by 6.2 per cent in August, and e-commerce transactions increased by 2.9 percent, on an MoM basis.
The credit card spending was mostly observed in Tier 2 and Tier 3 cities.
Is This Sign Of Stress?
This surge in use of credit cards indicates that the spending binge is in line with rising indebtedness and falling savings among Indians, further pointing to the anticipated growing stress as incomes stagnate.
In a recent report, Rupa Rege Nitsure, Group Chief Economist of L&T Finance noted that the card spends “indicates people are borrowing to spend.”
Further adding that “As loans on credit cards are unsecured, there is a risk of high defaults,” particularly if economic growth slows later in the year.
Besides this, the rising spending also points to an aggressive retail push by lenders in the under-banked market with a 1.4 billion population.
This has also affected the economy as banks have expanded their balance sheet mainly by funding individuals post pandemic.
Meanwhile, the credit demand from businesses has somewhat lagged.
The banks’ retail loan portfolio doubled between 2019 considering the record-low rates offered to meet pent-up demand, now raising concerns among policymakers.
This surge in expenses is also related to utility payments, such as travel and entertainment.
It is noteworthy here that this is the second consecutive month after July where spending has surged.
