Anything and everything has some direct or indirect impact on people and their behaviours and responses. Globalisation, technological advancements, innovations and the different practices in different parts of the world have together completely changed the markets and so the consumers’ behaviours. These have brought in significant change in the financial behaviours of the consumers also and India is not an exception to this phenomenon. Rather India has been a pioneer in many changes these days especially after 2010.
All types of loan products were traditionally considered to be the last option and if possible were expected to avoid loan products as much as possible and financial institutions were always the last assort for the people. However, there is a significant change in the financial behaviour of Indian consumers over the last decade.
Indian consumers had preference for the debit cards over the credit card but these days, Indian consumers have also been lapping up credit cards. The number of credit cards has grown by nearly 20% over the past year. Not just their numbers have grown but they are being put to use.
In the last one year, credit card payments (transaction value) over point-of-sale (POS) terminals, which is typically used by retailers, has grown by 9% and the growth rate of credit card payments has been by 20% for online and other transactions. This is in contrast to debit cards. The transaction value for the debit cards has fallen down in this period. This fall in the transaction for debit cards on POS terminals is by more than 19% and for online and other transactions by more than 29%.
As of now, there are 10 debit cards for each credit card in the Indian financial system. So, still debit cards dominate the market in terms of numbers. But without doubt, credit cards are being preferred for transactions over debit cards. However, it should be noted that the credit card holders are the individuals with the highest possible purchasing power in the Indian economy while debit cards are issued to every bank account holder and considering the increasing financial inclusion and zero balance accounts though Jan Dhan Scheme, the numbers of debit cards in the Indian economy naturally becomes very high. In January 2023, there were more than 225 Crores bank accounts in India.
The growth in credit cards is driven by a number of factors. It includes the marketing push backed by reward programs and other benefits as well as the behavioural changes of the consumers. This growth may be seen as beneficial for the banking and financial sector but the same has not been received positively by the market regulator Reserve Bank of India (RBI).
The growth in small loans and credits has alerted RBI and as a result the RBI worried on 16 November 2023, increased the amount of capital that lenders need to set aside for credit card loans. This regulatory provision by the RBI is expected to moderate the growth in the credit cards
For many, it is a conservative move taken by the RBI. However, RBI has always been conservative about financial stability and prefers to avoid any ballooning in the financial sectors which may cause financial instability. And it is always better to prevent than cure!
Rajeev K Upadhyay
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