Credit Card Spending Soars In India Even As Card Issuance Drops

 India’s credit card market is seeing a surge in card spending even as the number of cards in circulation declines, suggesting issuers’ strategy to target premium customers and shed risky ones is working.

Indian consumers in May spent 78.8 billion rupees (US$1.7 billion or 1.2 billion euros) using credit cards, up 32.9% from 59.3 billion rupees during the same month last year, according to data from the Reserve Bank of India, the country’s central bank. They initiated 25.3 million credit card transactions, up 21.1% from 20.9 million.

The number of credit cards in circulation in May fell 6.8%, to 17.7 million from 19 million a year earlier.

The decline in cards issued is the result of banks tightening their application procedures, Mrinalini Manral, a Mumbai-based independent banking analyst, tells PaymentsSource.

“Earlier, in search of a higher market share, banks had issued cards to all and sundry without conducting due diligence,” she says. “That backfired in the 2009 slowdown, when all these credit-unworthy customers defaulted.”

Banks now are targeting premium middle- to high-income customers who not only will spend more but also will pay back their card loans. “Banks are desperate to keep their books healthy and not have bad loans on their hands like in the slowdown,” Manral says.

Ratcheting up the competition for wealthy, low-risk customers in India, HDFC Bank Ltd. on July 12 launched an ultra-premium credit card designed for the super rich (see story).

New entrant Laxmi Vilas Bank Ltd. also launched a Gold debit card for its premier banking customers earlier this month, complementing its existing regular card offering (see story). 

Debit card sales volume in May increased 42.4%, to 42 billion rupees from 29.5 billion rupees a year earlier. Debit card transaction volume increased 35.8%, to 24.3 million from 17.9 million, the central bank says.

The continuing trend of increased debit card use is consistent with the Indian trait of using cash first and credit later, Manral says. “Before the slowdown, people were using credit more, but a crashing economy has made them more risk-averse than before,” she says.

Indian financial institutions had issued 234.9 million debit cards as of the end of May, up 24.8% from 188.2 million a year earlier.