India had 8.7 crore credit cards in May, up one crore from the last year. We’re racing to the 10 crore mark.

The outstanding dues on credit cards rose to Rs 2.01 trillion in May, from Rs 1.54 trillion the previous May. A BankBazaar analysis in April concluded that the average credit card is used at least thrice a month for average total monthly spends of Rs 15,388.

Of these, online transactions — totalling 131 million in May — are rapidly catching up with machine swipes at 141 million. The average credit card transaction is Rs 5,120. The average digital transaction is Rs 6,851. Indians are warming up to their credit cards. Why is this happening? What are the opportunities and risks for consumers? Let us take a quick look.

Why is it happening?

Multiple factors are driving the spike in consumer credit demand. More Indians are now credit-eligible and credit-mature. They’re choosing to exercise their eligibility to finance their aspirations. These may range from a home or a car to a phone or even a gourmet meal.

Credit cards themselves are aspirational products. They’re not just payment instruments but keys to aspirational lifestyles, convenience deals, discounts, and rewards for brand loyalty.

The young workforce is starting off with lifetime free cards. Experienced consumers are upgrading to their second or third cards. Sometimes, these are premium cards where the annual fees unlocks higher rewards.

Opportunities for consumers

The loading of no-cost EMIs on to cards has been a tremendous innovation in Indian banking. This lets consumers use no-cost EMIs for 6-9 months to finance electronic goods such as laptops, TVs, and phones. EMIs have, in part, enabled larger spends on cards.

Credit card rewards are also a matter of intense discussion in the community. Consumers have questions. Which cards help them with their preferred lifestyles?

What’s a fair rate for reward points? What’s the rate of conversion for the points? Do the annual fees pay for themselves? Information gets shared rapidly on social media, driving demand for premium cards which help consumers get steep discounts on digital spends.

How card issuers react

Banks and credit card companies have an unenviable task. They must balance this steep demand for credit cards with their need to grow their loan books profitably and sustainably.

The RBI’s latest financial stability reports reveals concerns at government banks over gross NPAs (where payments are due for 90 days or more) on credit card dues.

In the March quarter, they had risen to 18 per cent. Overall, commercial banks are doing well with credit cards and the GNPAs stood at just 2 per cent in March.

Some cards are more generous with rewards than others, and word gets around fast. As more consumers demand the same cards, it becomes challenging for banks to sustain above-average rewards. Therefore, we’re also seeing a few banks scale down premium benefits.

Risks to be aware of

At a time like this, it’s natural to feel left out if you’re not using a credit card. It isn’t always easy to get one. Online offers typically require a credit card. Often, it feels like the offers are on all the cards except the one you own. Therefore, there’s also a need among consumers to diversify their payment options to cast a net wide enough to catch all the deals and discounts that matter. There are two critical things to remember as a credit card consumer.

Buy thoughtfully

It’s destructive to your credit score if you apply for too many credit facilities at once. Each application triggers a ‘hard’ inquiry into your credit history. Each such inquiry marginally lowers your score. The more your score falls, the lesser your eligibility becomes. This could also drive up the interest rate you pay on new loans. Therefore, select your credit cards thoughtfully. You may be eligible for many cards, but most of your needs may be fulfilled by one good card. Get used to that card, let your credit score stabilise, and then apply for additional cards you may be eligible for.

Pay on time

Credit card dues have exceeded Rs 2 trillion in May. Spends were at Rs 1.4 trillion. That’s Rs 600 billion in debt rolling over from the previous month.

While NPAs are still under control, it’s a good reminder for consumers to pay their dues on time. Credit card dues are costlier than other forms of borrowing, with annual interest rates often exceeding 40 per cent.

Unless paying EMIs, always clear your dues in full and on time every month. This will help your credit score as well. Minimum payments will protect you from late payment penalties but not from interest payments.

Credit cards are booming. They’re safe to use and help you access rewarding experiences. But remember that they work best when you repay your dues in full.

Saving plan

Q. My daughter, 32, is a bank employee in Delhi for the last six years. As of now in banking services there is no pension scheme. She wants to invest in a pension scheme. She invests Rs 5,000 per month in PPF and pays Rs 10,000 per annum in LIC for self. Her take-home is Rs 50,000 per month. Can you give some suggestions?

D.N. Verma, Calcutta

It is good that your daughter has already started investing in PPF which will help to accumulate a long term corpus. As far as pension options are concerned she may consider NPS which a long term voluntary investment plan under the purview of PFRDA. The scheme offers options to the investor to choose their portfolio allocation depending upon the risk appetite and has given annualised returns in the range of 9-12 per cent. There are also tax deduction benefits on self contribution and at the time of retirement, investment can be made in annuities for regular income. Given her age, another option is considering a deferred annuity plan with a life insurance cover.

Tax return filing error

Q. I am a senior citizen and have been filing my IT return through free websites such as Cleartax and Tax2win. Now they have started charging. I tried to file my return offline by downloading ITD 1 (excel utility). But on filing the full details and data, there is an error prompt. I have tried filing for 3-4 days but could not. I don’t want to file through hired people to avoid data theft. What should I do? Dharm Verma, email

The income tax department’s own website is the safest bet if you are concerned about data privacy. While it is true that the offline utility can take a bit of time to understand, especially around validation of your data with that of income tax authorities, online filing of ITR 1 is also now available, which is easier to comprehend. It autopopulates data based on AIS information and you can make modifications and give consent at every steps while filing the returns.