Monday, September 13, 2010

Use of credit cards goes down in India

Almost everyone has been a victim of the aggressive cold calls in which banks push their credit cards. With the Indian economy expanding rapidly and the middle class burgeoning, several analysts believed there was no end to the use of plastic money in India. In fact, they had predicted it would only grow.

However, numbers released by the Reserve Bank of India have belied any such projections far from growing at a blistering pace, credit card usage amongst India's consumers is actually falling. Use of plastic money, instead of cash, is seen by economists as a sign of confidence of the ordinary consumer in the economy.

Not only is the plastic money in circulation in India falling, it is also underutilized. On an average, the annual number of transactions per credit cards stands at 11; it is only one in case of debit cards. " Debit cards have had a slow start and their growth only took off in the last three years. On the other hand, credit cards grew faster since inception, with the growth turning negative in the latest year," noted IIT- Bombay faculty Ashish Das, who authored a paper 'Cashless payment system in India A roadmap'.

Data thrown up by the most recent RBI bulletin to which TOI has access shows that the Indian consumer remains cautious when it comes to making his purchases through the swipe of a card.

Backed by strong marketing, the number of credit cards issued by various banks showed an upward trend from 2006 to 2008. In fact their number grew by more than a crore in the three financial years from 2005 to 2008.

However, thereafter, figures began to dip perhaps due to the global economic slowdown and the Indian consumer's conservative nature. For the first time in many years, the number of transactions where credit cards were used also fell in the last financial year of 2009-10. While 25 crore purchases saw the use of plastic money in 2008-09, the figures fell by more than two crore transactions in the financial year ending March 2010.

"We have seen several customers surrender their credit cards. Increasingly, debit cards are gaining popularity. While the total business transacted by credit cards fell by 10% across India, the total amount of transaction with debit cards increased from Rs 18,547 crore to Rs 26,417 crore," said a senior manager from HDFC bank.

In the recent past, credit cards have found acceptance with the Indian consumer after banks introduced several security features and even simple purchases could be made using plastic money. However, the falling numbers in both the number of cards issued and the transactions carried out with them is a source of worry for most major banks, said a senior manager from a public sector bank. Increasing reliance on cashless transactions is seen as sign of a modern economy where there is a strong synergy between the ordinary consumers and its financial institutions.