Don't bank on cash back offers

Only 2-3% of purchases qualify for credit cards' schemes.

If you are planning to binge on your credit cards lured by the "cash back" offers, here is a piece of information that you may find handy: Only 2-3 per cent of the total credit card spend is eligible for cash back offers.

ICICI Bank, HSBC and BOBCARDS launched cash back offers in the beginning of the festival season offering 5 per cent, 10 per cent and 5.5 per cent cash back on purchases, respectively.

Now, the eligibility for availing of cash back offers for most of the credit cards is dependent on single purchases of certain amounts and total purchases made during the offer period. ICICI Bank has gone even one step ahead and told its customers to make purchases at merchant locations which have the bank's point-of-sale terminals if they want to get 5 per cent of their cash back.

There's also a ceiling on the maximum cash back a card holder can avail of. ICICI Bank and BOBCARDS have restricted the maximum cash back per card to Rs 1,500, while HSBC has limited it to Rs 1,000. BOBCARDS also says that single purchases of Rs 1,000 and more should add up to Rs 25,000 during the offer period for the cardholder to be eligible for the cash back.

"With so many riders, very few cardholders fulfil the eligibility criteria for cash back at the end of the offer period. This is nothing but sales gimmick," says a banker.

According to a public sector banker, many credit card holders get induced by the publicity blitz on cash back and end up using 25-30 per cent higher than normal credit.

"Nobody looks at the conditions even though the fine print on the big hoardings says 'conditions apply'," he adds.

Offers like cash back are marketing tools to spur greater spending on cards. The gains for the bank are much more if the increased credit usage leads to cardholders deciding to pay outstandings in installments, a private sector banker points out. The annual spend per card at $500 in India is the lowest in the region, behind even countries like Sri Lanka.

The average annual spend on the 3.5 million credit cards in India is about Rs 20,000 and 35-40 per cent of the annual credit card spend takes place during the September-December festival period which the card issuers are targeting through the cash back offers.