As Covid 2nd wave wanes, credit card spending rises in India

As restrictions on public movement and businesses ease, Indians are spending on their credit cards the way they used to before the coronavirus pandemic hit the country late 2020, shows Reserve Bank of India data.

Credit card spending dipped to ~52,131 crore in May this year. It increased to ~62,746 crore in June — a number higher than in February but marginally below levels seen in January.

Spending in June 2021 was slightly more than February 2020 — a time before the pandemic — but lower than the January 2020 figure of ~67,000 crore. March recorded the highest credit card spending, of over ~72,000 crore, in 2021.

All major credit card companies saw a sharp improvement in spending in June 2021 after a decline in April and May, a period when India was battling a second wave of Covid-19.

The January-march and April-june quarters of 2021 saw growth compared to the same period last year. Spending in April-june of 2021 was, however, lower compared to the preceding quarter.

“Total CC (credit card) spends rose 20 per cent MOM in Jun’21 after declining 18 per cent/12 per cent MOM in Apr’21/may’21. The improvement in spends can be attributed to lower lockdown restrictions owing to falling Covid cases. Jun’21 CC spends came in at ~62,700 crore, largely in line with average spend of ~650 billion seen during H2FY21,” said ICICI Securities in a report.

Growth in credit card spending slowed down in the previous financial year, largely due to the lockdowns and regulatory measures. HDFC Bank, the largest credit-card issuer in India, was banned by the RBI from issuing new cards in December after frequent outages in its mobile and net banking platforms. HDFC Bank’s total card base fell from 15.38 million in December to 14.82 million in June after the ban, which the central bank partially lifted earlier this month.

As on June 30, the total credit card base of the entire system was 62.8 million. The market share, in terms of credit card spending, shows that domestic players are leading and foreign banks are losing out.

In terms of spending market share, foreign-owned Citibank, American Express and HSBC witnessed sequential dip. India’s SBI Card saw a 30 bps increase to 19.5 per cent in June 2021, said the ICICI Securities note. Among other Indian lenders, HDFC Bank and RBL Bank’s credit card spends in terms of market share stood at 27.9 per cent and 4.8 per cent, respectively — down around 43 bps and 36 bps month-on-month, respectively. Axis Bank remained stable at 8.3 per cent.

As festivals near and more states ease curbs, spending is expected to spike significantly.

“Spending is likely to increase from the current levels because we are still in the recovery stage,” said Nitin Aggarwal, analyst with Motilal Oswal Securities. “Travel-related spending is improving, hotels are seeing higher occupancy rates, there is some pick-up expected in restaurants also. As of now, mostly delivery is happening, dine-out is yet to pick up. Malls, multiplexes also will be opening.”

“Credit card spends dipped due to the lockdowns. The numbers for June suggest spending is inching up,” added Sunil Rongala, who works with Worldline, a transaction facilitator in digital payments. “There is definitely going to be a sustained increase in credit card spends, partially because if you see the pattern, most of the large purchases are made on cards. Given that there are a lot of incentives to spend on credit cards, you are going to see spending increase.”

According to ICICI Securities, the second quarter of FY22 could see 35 per cent higher spends than the first, and 59 per cent higher than Q2FY21.

“The entire chain of recovery is likely to happen in the coming months, which will drive further pick-up in spending. New card acquisition rate will also improve, particularly for these card companies like SBI Card, which are aggressive in going out to source cards. This activity will not result in a higher acquisition,” Aggarwal said.

HDFC Bank, India’s largest private sector lender, aims to get back to its pre-ban run rate of issuing 300,000 cards a month in the next two or three months, which would be increased to 500,000 credit cards every month starting February 2022.

“It (500,000) is a huge number. It’s more than the monthly average of new card acquisition of the last financial year,” said Aggarwal. On an average, FY21 saw little more than 350,000 cards added every month.

As on June 30, the total credit card base of the entire system was 62.8 million. The market share, in terms of credit card spending, shows domestic players are leading