RBI report on Credit Card Use in India
The RBI (Reserve Bank of India) released a report at the beginning of the month detailing credit card and debit card use in India. There has been a substantial increase in the use of both these types of cards to make payments. The RBI estimates that the value of India credit card and debit card transactions increased by over 42% in the year 2007-2008. The total value of transactions for the time period being studied stood at Rs 72,000 Crores, which in US Dollars works out to a little over US$ 15.6 Billion.
The most obvious reason for the torrid growth in the use of cards to make payment, is there are obviously a lot more people who carry credit cards and debit cards in their wallets or purses, and as time passes, individuals have become more comfortable using them and more aware of the product’s uses and limitations. With credit free periods, canny users can make payment for ordinary things and pay no interest whatsoever. So as Indians consumers become more educated, the more willing they are to use their cards. Banks have also added fuel to the fire by issuing a large number of new cards every year sometimes unsolicited. It is only natural to see such high growth rates in the use of plastic in the country.
Phenomenal Growth in Balances
The RBI figures clearly suggests that transaction value growth is far in excess of the growth that occurred in the previous period 2006-2007, where the value of transactions grew at a more modest pace of 26%. Carrying cards is obviously more convenient than carrying cash, banks in their push to attract more customers are rapidly increasing their ATM networks and more and more merchants are adding credit cards and debit cards as a payment options.
RBI data suggest that the number of cards issued during the period 07-08 increased by 46%. There are now over 88 million cards in circulation in India compared to just 60 million in the previous cycle. Outstanding credit card balances also increased significantly in the year 2007-2008, balances grew by 44% to Rs 5,843 Crore or US$1.3 Billion. If we calculate what the total balances outstanding are up till May this year, then this year alone they have increased by a whopping 87% to Rs 12,375 Crores or close to US$2.8 Billion.
The growth rates are astronomical, but India did start from a low base where few people had cards to begin with. Just ten years ago very few transactions were done using plastic. As the internet becomes more widely available Indian content on the internet has also become more compelling for the average Indian shopper. Online travel portals have done a great job in marketing themselves, and lots of people apply for cards just so they can book plane and train tickets online. As mall mania continues unabated, more fashion conscious and increasingly upwardly mobile consumers want to be able to buy their movie tickets over the internet and after dinner and a movie perhaps, buy the item of clothing that they would not ordinarily buy unless they had some credit.
Credit Vs Debit
Indian credit card are here to stay. There is a view that in India the almighty credit card will have to cede to the debit card in this country. This is very hard to believe, for now the debit card is clearly more popular, but as consumers become more knowledgeable, the product will quickly loose ground. The debit card though it is great for a lot of things and has many of the same uses and features as a credit card, it is a considerably weaker product and has limitations. Credit cards come with lines of credit attached that if used wisely don’t even require interest payments. It doesn’t make sense for people not to have a line of credit if it is available to them, if that is an option and taking advantage of interest free periods is nothing short of free money. The limitations of debit card occurs primarily over the internet. Debit cards do not always work even when issued by MasterCard or Visa. Some online merchants will only accept credit cards. Ultimately the credit card is a far superior product. Having one, whilst using your debit card in most situations in order to avoid credit card debt is probably the best way to get the best of both worlds. Responsibility is the key to getting the best out of life. Use your credit card wisely, and all will be well.
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