Plastic shuffle

Calcutta, Sept. 7: The growth rate in the use of debit cards is outstripping that of credit cards because of high interest rates.

The average value of transaction through debit cards has increased 9.1 per cent in 2007-08 over the previous year vis-à-vis four per cent growth in the average spend through credit cards.

According to data of the Reserve Bank of India (RBI), the total value of retail payments made through debit cards grew 53.2 per cent to Rs 12,521 crore in 2007-08 against Rs 8,172 crore in 2006-07. In terms of the volume of transactions, debit cards showed impressive growth of 46.7 per cent to 6.02 crore during the year ended March 31, 2008.

Growth in credit card payments in 2007-08, in terms of volume and value, has also been sharp at 34.6 per cent and 40.1 per cent, respectively. The total value paid stood at Rs 57,958 crore and there were 22.82-crore transactions done through credit cards.

“Following the increase in interest rates, the burden of people who already have a personal, car or home loan has gone up. This has also reduced their disposable income. In this situation, some people opted for using plastic money more to purchase goods and services on credit. There are, of course, others who didn’t want to increase their interest liability and preferred to use debit cards,” said a senior official of a private sector bank.

The steep increase in the usage and average spend through credit cards, however, entailed piling outstandings and payment defaults on such cards. At a meeting with the Indian Banks’ Association on August 1, the RBI deputy governor, V. Leeladhar, said that if banks issued cards without proper scrutiny of credit-worthiness of a customer, there would be growth in defaults.

According to the RBI, payment outstanding on credit cards shot up 87 per cent to Rs 26,596 crore at the end of May this year.

Credit card outstanding grew 45 per cent during the 12 months ended May 2007. Growth in payments through credit cards were at variance with growth in personal and home loans between April 2007 and May 2008.

While the rise in interest rates had a dampening effect on growth in personal and housing loans, it failed to adversely affect credit cards.

The personal loan portfolio of banks grew 15 per cent between April 2007 and May 2008 compared with a growth rate of 24 per cent a year ago. The offtake of housing loans, too, slowed down to around 13 per cent by May-end this year from 22 per cent last year.