Mahiyar Rohinton Patel, Pune
According to the Reserve Bank of India (RBI), credit card usage has grown to an all-time high in India. This record-high spending of borrowed money has led to speculations of stress in the economy, as spending will keep climbing in the coming months of the calendar year because of the incoming festive season. November will see Diwali followed by Christmas and the new year. Spending is only projected to go down in the early weeks of January.
Credit card transactions have reached an all-time high in value at Rs 1.48 trillion in August. A significant rise from Rs 1.45 trillion from July, according to the last two reports published by the RBI.
High levels of indebtedness could deep fissures in the Indian economy as financial default rates for credit cards could skyrocket. All credit facilities provided by financial institutions are unsecured, therefore default rates can be impacted if economic growth slows and incomes stagnate. Notions of the Indian consumers’ habits point towards a high amount of the household income allocated towards savings and a very cautious approach towards spending.
The change in the spending habits of the average consumer could be accredited to two primary causes. One is quicker and easier delivery of funds through the proliferation of digital services by banks and other Non-Banking Financial Companies (NBFC) such as Bajaj Financial Services and Tata Capital. Two, record low rates by lenders because of the slowdown during the Pandemic years and the resultant pent-up demand for credit.
The pandemic years and the limitations in the economic activity that followed caused several leading banks to bloat their balance sheets with loans to retail customers and individuals. At the same time, credit facilities provided for business loans need to catch up. From 2019 to 2023, the retail credit loan portfolio of banks doubled.
United Payments Interface (UPI) and credit cards have both seen all-time high transaction volumes. They have both seen a steep increase in overall value and number of transactions. According to MygovInd a governmental finance monitoring website, India has topped the world in financial transactions, holding a 46% share in digital transactions.