Debt Crisis? Credit Card Defaults Hit Rs 6,742 Crore

While the usage of credit has increased significantly, non-performing assets (NPAs) or defaults by customers have jumped by 28.42% year-on-year, hitting Rs 6,742 crore by December 2024, The Indian Express reported citing the latest RBI data.

How Much Was Credit Card Default In 2023?

The gross NPAs in the credit card sector grew by Rs 1,500 crore, climbing from Rs 5,250 crore in December 2023 to Rs 6,742 crore in December 2024. This uptick reflects struggles among borrowers to clear dues due to overspending, financial difficulties like job losses, and steep interest rates on pending balances.

These NPAs now make up 2.3% of the total outstanding credit card loans, which amounted to Rs 2.92 lakh crore in December 2024. In comparison, the NPA ratio stood at 2.06% in 2023 when the total outstanding was Rs 2.53 lakh crore.

When examined over a longer timeframe, the surge in credit card defaults becomes even more striking. Credit card NPAs have skyrocketed by over 500% from just Rs 1,108 crore in December 2020, diverging sharply from the broader banking sector's trend, the English daily reported citing reply to the RTI query.

The overall banking sector saw gross NPAs decline from Rs 5 lakh crore (2.5% of total advances) in December 2023 to Rs 4.55 lakh crore (2.41%) by December 2024.

RBI data reveals that credit card receivables totaled Rs 2.92 lakh crore, with Rs 6,742 crore of that sum classified as NPAs as of December 2024. Credit card receivables represent the cumulative outstanding amount that users owe to banks or credit card issuers for their spending.

What Is Attracting Customers To Use Credit Cards

What attracts the customers in the credit card segment is perks like rewards for high spending, shopping and travel discounts, easier access to loans, and lounge access.
"Customers should realise that if they keep card dues beyond the interest-free period, they end up paying an interest rate of up to 42 per cent in some cases. It will put them in a debt trap," a bank official said.

The Reserve Bank of India (RBI) raised risk weights for banks' exposure to consumer credit- including personal loans, credit card receivables, and loans to NBFCs-by 25 percentage points, pushing the risk weight up to 150% in November 2023..

"Even as inquiry volumes remain robust, the impact of an increase in risk weights on certain segments of consumer credit pulled down the rate of growth in overall consumer credit, especially personal loans and credit cards," the English daily quoted RBI's FSR report as stating.

Risk weight dictates the capital banks must reserve to cover potential loan losses. A higher risk weight requires more capital, making lending in that segment more expensive. This measure aims to curb financial instability stemming from a rapid rise in unsecured loans and credit card debt.