Consumer spend through credit cards dips in FY21 compared to FY20

If you have used your credit card less frequently in FY21, you are not the only one. The entire country did so. Consumer spending through credit cards, an indicator of consumer sentiment, grew by 7.8% in Covid-ravaged FY21. The rate was a good 14.7 percentage points lower than the sprightly 22.5% growth recorded in FY20.

According to a report by the Reserve Bank of India, different banks issued a cumulative 43 lakh new credit cards in FY20. As of March 2021, the total number of stood at 6.2 crore in the country.

For a bank, the expenditure on credit cards is unsecured loan, which is risky at times of economic slowdown and widespread job losses.

Second run

Though data pertaining to the current financial years is not yet available, there is little reason to think that the use of credit cards would rise, given the savage second surge of the Covid infection.

All surveys point to dipping consumer sentiments coupled with a gloomy outlook that are bound to affect discretionary spending.

Research agency QuantEco, that has a Daily Activity and Recovery Tracker (DART) Index to capture early signals and turning points, said it registered a drop of 5.3% week-on-week ending May 9. It followed a contraction of 7.9% in the week prior.

April-May mood

“Since the beginning of April 2021, the index on a cumulative basis, has retraced by nearly 45% to levels last seen in August 2020. The decline has been led by consumption-based indicators of railway passenger travel, restaurant related online searches and mobility indicators, accompanied by a rise in unemployment rate,” said its report on May 17.

While the drop in consumption last year was substantially led by supply constraints and the lockdown, this year it is more due to panic in the average consumer and a lack of confidence in the future that will shape the recovery process, said Yuvika Singhal, economist with QuantEco.

“In this climate it is quite natural that people would try to conserve money for medical exigencies and other uncertainties rather than spend on consumer goods or impulse purchases,” said Prasunjit Mukherjee, chief ideator, Plexus Management Services.

Subdued sentiment

Consumer sentiment, according to CMIE data, has been declining steadily from the week ended April 11. For that week the sentiment index was at 57.3. The next week (ended April 18) it crept down to 54.8. While the index further dipped to 52.3 in the week ending April 25, it fell to 49.5 in the week ending May 2.

Rate of unemployment, too, as measured by CMIE,  has been rising steadily in the country impacting consumer sentiment.

High outstanding

According to RBI data, credit card outstanding amount stood at Rs 1.16 lakh crore in March 2021 compared to Rs 0.08 lakh crore in March 2020.

“When people are passing through trauma in their homes, I don’t think they would like to spend anything more than essential services and medical care,” HDFC Bank CEO Sashi Jagdishan had said earlier this week.

Low consumer sentiment that is seen as crucial to impacting credit card expenditure was continuing from the winter months as is evident from a survey by the RBI.

Downbeat perception

In a survey released in January 2021, RBI said: “Consumers perceived that the current economic situation was significantly worse when compared to a year ago, but it improved from November 2020 round of the survey… Weak sentiment emanated from downbeat perception on the major parameters such as general economic situation, employment scenario, price levels and household incomes, when compared to a year ago.”

Anil Gupta, Vice-President, financial sector ratings at ICRA, told media that banks deactivated a number of credit cards since April 2021 based on their revised risk assessment.