RBI restrictions eat into credit card spend in festive season

Sandeep Singh Posted online: Thursday, Oct 24, 2013 at 0000 hrs
New Delhi : Slowdown in consumption and RBI’s diktat against subvention and zero per cent EMI schemes on credit cards is set to play a spoiler this festive season for credit card players. Banks, in the business, say that spending growth in October over September is likely to be only around 10 per cent as against a 16 and 18 per cent growth registered in October and November 2012 over that in September 2012.

Industry insiders say that RBI’s move to impose a restriction on zero per cent EMI scheme on purchases at various merchant establishments has impacted the overall demand as consumers are not getting easy finance facility, which is leading to a dip in credit card spending and overall consumption.

“There are several factors affecting the market. While the overall economic environment is weak and consumer sentiment is down, RBI’s regulation on subvention schemes and zero per cent interest is keeping the customer away,” said the head of a leading credit card company who did not wish to be named.

“Also RBI’s notification to replace all credit cards with new chip plus pin cards is leading to decline in spend as only around 50 per cent of the old point-of-sale terminals have been replaced. Therefore in several cases, transactions are declining because the infrastructure is not fully in place.”

A top official of another leading bank in the credit card business said that RBI diktat has had a significant impact over the last six weeks. “Banks had already stopped EMI scheme on jewellery purchase and a ban on zero per cent EMI just before the festive season is definitely impacting the business. The growth in October over September this year may only be around 10 per cent,” said the official.

According to industry experts, growth in October and November over September reflects the growth in the festive season. In 2012 the spend in October and November over September stood at 16 and 18 per cent even though Diwali and Dusshera fell in two different cycles. However, in 2013 even as both the festivals fall in one cycle, the growth in October over September is expected to remain at only around 10 per cent.

In the first half of this calendar, the growth in credit spend rose significantly over that registered in the previous year but it declined in July and August. If the year-on-year growth in the six-month period between January and June 2013 stood at 27 per cent, it slipped to only 12 per cent during July and August.

Bankers are, however, hopeful that in a month growth should be back as they may be able to go ahead with the zero per cent EMI scheme. They are implementing procedural changes that will bring their system in line with the transparency suggestions of RBI.

“We are already making structural changes to make it completely transparent to the customer and we expect, by November-end, the zero per cent EMI scheme should be back,” said an official with a bank.

In the zero percent EMI schemes, a processing fee was charged, which RBI says is a way to camouflage the interest in the loan. In the subvention scheme there is no charge and the interest to the card issuer is paid by the merchant or the manufacturer but RBI felt that banks were not being transparent to the consumer and so asked them to stop it.

credit card spending

2012 2013 YoY %


Jan 88,676 1,13,920 28.47

Feb 81,965 1,01,036 23.27

March 88,373 1,11,217 25.85

April 1,01,186 1,24,182 22.73

May 93,073 1,24,638 33.91

June 90,269 1,13,764 26.03

July 98,745 1,10,386 11.79

Aug 95,843 1,07,480 12.14