Increase in transactions through debit card than credit cards

Recently credit card issuing banks have increased charges and interest rates due to which now people prefer to use debit card.

According to the records the average value of transaction through debit cards has gone up by 9.1 per cent in 2007-08 as compared to the previous year vis-à-vis four per cent growth in the average spend through credit cards.

As per the records of the Reserve Bank of India (RBI), the retail payments made through debit cards have gone up by 53.2 per cent to Rs 12,521 crore in 2007-08 as against Rs 8,172 crore in 2006-07. Even in the terms of the volume of transactions, debit cards have shown impressive growth of 46.7 per cent to 6.02 crore by the end of fiscal year on March 31, 2008.

According to RBI there has been growth in credit card payments in 2007-08, and in terms of volume and value, also there has been sharp increase at 34.6 per cent and 40.1 per cent, respectively. In 2007-08 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.

But steep increase in the usage and average spend through credit cards, has caused piling of out standings and payment defaults on such cards. In a Indian Banks’ Association meet held on August 1, the RBI deputy governor, V. Leeladhar, said that if banks kept issuing cards without proper scrutiny of credit-worthiness of a customer, it will increase the number of defaulters.

According to the RBI, by the end of May this year the payment outstanding on credit cards has shot up 87 per cent to Rs 26,596 crore. While during the 12 months ended May 2007 the credit card outstanding had grown by 45 per cent

The growth in payments through credit cards was at variance with growth in personal and home loans between April 2007 and May 2008.

However the rise in interest rates had shown a dampening effect on growth in personal and housing loans, but did not show any adverse effect on credit cards.

Banks have shown growth of 15% in the personal loan portfolio between April 2007 and May 2008 as compared to a growth rate of 24 per cent a year ago. Even the off take of housing loans, also dropped down to around 13 per cent by May-end this year from 22 per cent last year.