Rising credit card balance points to start of consumer spend ahead of festive season

Credit card holders appear to have begun to loosen their purse strings in the final few months of last year, setting off potentially a sustained period of growth in card spend by people as both inflation and financial conditions have started easing.
The data from the Central Bank suggested that the months-long decline seen in the total outstanding credit card balance have ended in November as people have spent Rs.1,205.0 million via their cards on a net basis compared to a net settlement of Rs.309.0 million in October.

With November data, the licensed commercial banks in total have expanded their outstanding card balances by Rs.2,099 million in the eleven months to Rs.145,197 billion as there wasn’t much of a growth in the card balances until lately.
This clearly reflects that those who hold a card have used it more often during November, perhaps they increased their spending coming close to the year-end festive season.

The banks were also luring their card holders to use their cards more on travel and leisure, dining, shopping and many more with alluring offers and discounts after many months of being not so aggressive on such promotions due to tight financial conditions and elevated risk of delinquencies from cards.
When the going gets tougher financially, it is the cards that people renege first on, out of other loans they have taken on such as consumer loans, business loans or mortgages.

The recent consumer sentiment also partly reflected the phenomenon displayed by the increase in the card spend lately as there is a somewhat increase in the sentiments for the economy to do better in the period ahead with the inflation cooling substantially from its highs in 2022 and early part of 2023.

The taxes could however dampen this optimism and also the consumer spend in the near term until their incomes start rising more meaningfully in lockstep with the growth anticipated in the economy.
Meanwhile, Central Bank is also expected to further cut the ceiling rate charged on cards at a not so distant future date as lending rates are also coming down quite fast as the monetary easing measures are filtering through the real economy.

In September, the Central Bank slashed the maximum rate chargeable on outstanding card balances to 28 percent from the hitherto existed 35 percent alongside few other select lending products to speed the transmission of the policy easing.
Despite the rise in card spend, the number of active cards have continued to fall and in November it has fallen by 858 cards, bringing the total cards which were either terminated, suspended or cancelled to little under 40,000 during the eleven months.
Currently in total the licensed commercial banks have 1,913,000 cards in active.