RBI data shows that the number of credit cards issued by banks has also increased sharply to 10.61 crore by September 2024 from 9.3 crore in September 2023, 7.36 crore in March 2022 and 6.20 crore in March 2021.
Credit card repayment defaults are on the rise, reflecting growing stress and debt burden among customers. Credit card repayment defaults or portfolio risk (PAR) in banking parlance for credit cards with 91-180 days past due (DPD) have increased by 110 basis points to 7.6 per cent by June 2024 from 6.5 per cent in June 2023, a study said.
This means that defaults or delays in repayment of credit card dues by customers even after 180 days have increased. The study conducted by CRIF High Mark, a credit information bureau registered with the Reserve Bank of India, said that credit card defaults in the period of 181-360 days have increased from 0.7 per cent to 0.9 percent and defaults of more than 360 days have increased from 1.3 percent to 1.7 percent.
When a customer delays payment of his credit card bill beyond the billing cycle, the bank charges a high interest rate of 42-46 per cent per annum on the outstanding amount and his credit score also falls.
CRIF said that the average balance per card increased from Rs 28,919 in June 2023 to Rs 32,233 by June 2024.
If customers spend through this medium, is there any indication that credit card usage is growing rapidly in the country. The value of credit card transactions has tripled in the last three years to Rs 18.31 lakh crore during the year ended March 2024 from Rs 6.30 lakh crore in March 2021, as the economy is recovering from the problems created by the Covid pandemic and consumer confidence has been steadily rising over the last several quarters.
According to Reserve Bank of India data, the value of credit card transactions increased from Rs 6.30 lakh crore during the year ended March 2022 to Rs 9.71 lakh crore and further to Rs 14.32 lakh crore by March 2023.
Monthly spending by card users is now over Rs 1.50 lakh crore and stood at Rs 176,202 crore in the month of September this year. It was Rs 72,319 crore in March 2021. RBI data shows that the number of credit cards issued by banks has also risen sharply to 10.61 crore by September 2024 from 9.3 crore in September 2023, 7.36 crore in March 2022 and 6.20 crore in March 2021.
However, credit card outstanding has risen to Rs 281,392 crore as of October 2024 from Rs 249,635 crore in 2022. Card outstanding is the amount that remains payable from customers after the interest-free period offered by banks.
In November 2023, the RBI had increased the risk weight on banks’ exposure to consumer loans, credit card receivables and non-banking finance companies (NBFCs) by 25 per cent to 150 per cent. The move was aimed at addressing any risk build-up in these sectors.
“Even though the volume of inquiries remains strong, the impact of increased risk weights on certain segments of consumer lending has dampened the rate of growth in overall consumer credit, particularly personal loans and credit cards,” the RBI’s FSR report said. What attracts customers in the credit card segment are incentives such as rewards, loan offers and lounge benefits on spending more.
“Customers should understand that if they keep card outstanding beyond the interest-free period, they have to pay interest rates of up to 42 per cent in some cases. This will put them in a debt trap,” a bank official said. In FY24, of the Rs 18.31 lakh crore credit card transactions, Rs 6.51 lakh crore were through point of sale (POS) transactions involving merchants and shops.
Analysts said the rising use of cards is a sign of rising consumer spending. RBI’s Consumer Confidence Survey released last week said households are expected to spend more over a one-year horizon, as both essential and non-essential spending increased.
“Households display a somewhat more optimistic stance on the one-year ahead outlook for key economic parameters except prices; the Future Expectations Index (FEI) increased by 0.5 points to 121.9 in the latest survey,” the RBI survey said.
