Credit card delinquencies rise by 110 bps, says study

The number of credit cards issued by banks also rose rapidly to 10.61 crore as of September 2024 from 9.3 crore in September 2023, 7.36 crore in March 2022 and 6.20 crore in March 2021, RBI data shows.

Credit card repayment delinquencies are on the rise mirroring the increasing stress and indebtedness among customers. Delinquencies, or portfolio at risk (PAR) in the banking parlance, in credit card repayment in the 91-180 days past due (DPD) bucket have risen by 110 basis points to 7.6 per cent as of June 2024 as against 6.5 per cent in June 2023, says a study.

This means default or delay in repayment of credit card dues by customers even after 180 days has gone up. Credit card delinquency in the 181-360 days bucket has gone up from 0.7 per cent to 0.9 per cent and above 360 days default has risen from 1.3 per cent to 1.7 per cent, says the study conducted by CRIF High Mark, a credit information bureau registered with the Reserve Bank of India.

When a customer delays repayment of his credit card bill beyond the billing cycle, the bank charges a high interest rate of 42-46 per cent interest per annum on the outstanding dues and his credit score also plummets.

The average balance per card also rose to Rs 32,233 by June 2024 from Rs 28,919 in June 2023, CRIF said.

Credit card use is rising rapidly in the country if the customer spends through this route, are any indication. The value of credit card transactions 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 with the economy coming out of the problems created by the Covid pandemic and consumer confidence increasing steadily over the last several quarters.

The value of credit card transactions rose from Rs 6.30 lakh crore to Rs 9.71 lakh crore during the year ended March 2022 and Rs 14.32 lakh crore as of March 2023, according to Reserve Bank of India data. The monthly spends by card users are now above Rs 1.50 lakh crore and remained at Rs 176,202 crore in the month of September this year. It was Rs 72,319 crore in March 2021.

However, credit card outstanding has gone up to Rs 281,392 crore as of October 2024 as against Rs 249,635 crore in 2022. Card outstanding is the amount due from customers after the interest-free period offered by banks.

In November 2023, the RBI had increased risk weight on the exposure of banks towards consumer credit, credit card receivables and non-banking finance companies (NBFCs) by 25 per cent up to 150 per cent. The move was aimed to address build-up of any risks in these segments. “Even as inquiry volumes remain robust, the impact of 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 RBI’s FSR report said.

What have lured customers to the credit card segment are incentives like rewards on higher spending, loan offers and lounge benefits. “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,” said a bank official.

In FY2024, out of Rs 18.31 lakh crore credit card transactions, as much as Rs 6.51 lakh crore was through point of sale (POS) transactions involving merchants and shops.

The rising card use is an indication of the increasing consumer spending, analysts said. Households anticipated higher spending over one year horizon on the back of higher essential as well as non-essential spending, the RBI’s consumer confidence survey released last week said.

“Households displayed somewhat higher optimism on one year ahead outlook for major economic parameters, except prices; the future expectations index (FEI) improved by 0.5 points to 121.9 in the latest survey,” the RBI survey said.

Source : Indian Express, 13th December, Mumbai