Credit-driven purchases picked up pace in 2023, with credit card dues surging to a six-year high, gold loans increasing in high teens and vehicle and home loans expanding in double digits year-on-year, showed the latest RBI data.
Chief executives said last year saw increased use of credit cards owing to attractive offers of cashbacks and no-cost EMIs, whose share went up in purchases of smartphones, televisions, home appliances and even fashion products. Both asset-backed and collateral-free borrowings went up, indicating a diversified consumer base, leading to a sharp increase in retail credit growth. As consumers relied more on credit cards for purchases, growth in bank loans for consumer durables moderated.
The total outstanding balance on credit cards jumped 32.6% year-on-year in 2023, outpacing the 28.2% growth in 2022, according to the RBI data.
Bank loans for consumer durables
Similarly, gold loans increased 18.6% last year, against 12.4% in 2022, and vehicle loans grew 20.5% in 2023, much faster than 7-9% in pre-Covid-19 period.
“Finance companies along with brands have driven the credit card EMI schemes, whereby their share has doubled to 30% of all transactions in the last five years. This has reduced the share of loans from non-banking finance companies which is now at 40-45%,” said Nilesh Gupta, director at leading electronics retailer Vijay Sales.
Bank loans for consumer durables grew at the slowest pace in five years in 2023, up 13.7% from the year before. “In the fast-moving consumer goods (FMCG) space, companies are reporting a faster growth of volumes than of value,” RBI researchers said in the central bank’s January bulletin.
“Higher gold loans are not a sign of distress but just a case of leveraging assets for higher consumption,” said Madan Sabnavis, chief economist, Bank of Baroda. “Also, they cost lower than unsecured loans… In the case of credit cards, often people are not aware of the cost.”
Discretionary spending on entry to mid-segment products has been muted for five quarters now due to high inflation in daily life, debt taken by rural and lower income consumers at the peak of the pandemic, and delayed demand recovery in rural areas, said industry executives.
At the same time, the share of credit-based purchases has gone up 3-6 percentage points in the past five-six quarters in categories such as electronics and automobiles, with brands launching such schemes even for entry-level products and in small stores, hoping to boost demand and premiumisation in consumption, said the executives.
According to mobile phone market researcher Counterpoint, the share of credit-based purchases of smartphones jumped to 33% in 2023, up from 25% in 2022 and 18% in 2021.
“Since consumers don’t incur additional cost of financing, they are going for EMI schemes. Even brands are offering various offers for purchases done through financing,” said Tarun Pathak, research director, Counterpoint. Sales growth of apparel, footwear, beauty products and quick service restaurants halved to 9% in 2023 over the previous year, as per industry body Retailers Association of India. Categories such as cars and electronics recorded growth mostly in the premium segment, much like other consumer goods including FMCG, it said.