The total outstanding credit card balance increased for the fifth consecutive month in April reflecting the continued momentum in consumer spending through the first three weeks of the month before virus related restrictions returned and kept many people from venturing out except for their daily essentials.
The outstanding credit card balance, a gauge for the spending through credit cards, rose by Rs.2.6 billion in April, significantly up from Rs.566 million recorded in March, as more people travelled places and stayed in resorts, shopped extensively and bought durables and other household items triggering in what was referred to as a burst in economic activity.
People also swiped their cards more often making the most of low interest rates charged on their unsettled card balances, which dropped from 28 percent to 18 percent per annum in August last year.
The April spending surge took the first four months’ increase in the outstanding balance to a cumulative Rs.4.6 billion to Rs.121.9 billion by the end of April.
It is yet to be seen how the current round of restrictions could affect the momentum in May and June as people with cards also use them increasingly on sprawling e-commerce activities.
Meanwhile, banks added 11,399 new cards into the total number of active cards during April, about twice the 5,449 cards issued in March, reflecting both aggressive promotions carried out by the banks and the attractive offers, which draw people into owning a card.
Card business is one of the most lucrative businesses for banks as it generates more fee income on top of interest income from unpaid balance at a much higher rate than a typical loan.
However, banks also carry a higher risk, as credit cards are not collateralised by any tangible asset as cards are issued based on a person’s income and the past track record in credit worthiness.