The consumption boom is triggering not only a sharp growth in the credit card business but also an aggressive rise in the total outstanding dues in the segment. The current financial year began with its credit card dues in the first month settling above the Rs 2 lakh crore mark for the first time, the Times of India has reported.
According to data from the country’s central bank, dues of credit cards aggregated to Rs 200,258 crore in April. It was a rise of 29.7% over the figure in April last year.
Significantly, this comes against the backdrop of Reserve Bank of India issuing alerts against rise in unsecured loans, of which credit card dues are a prime example.
The sharp rise in cumulative dues has been attributed by experts to increase in the popularity of credit cards and their usage. Inflation has also been held responsible for the rise in the dues.
The balance sheet growth in credit cards is trending in line with the increase in consumer credit card spends. Over the last year, consumer spending has also gone up,” commented Axis Bank president and head (cards and payments) Sanjeev Moghe. Many also view increased expenditure through credit cards as an index of increased consumer confidence, which is a prime driver of a market-driven economy.
The share of credit card dues in aggregate bank credit stands at 1.4%. It stands third in the totem pole where housing with 14.1% grabs the top slot. Car loans form a poor second at 3.7%.
The shares that are smaller than that of credit cards is loans against FD as collaterals (0.8%), education loans (0.7%) and gold loan (0.6%). By the way, the share of industry in total bank credit has dipped from 26.3% to 24.3% in the 12-month period that ended in April 2023.
Continuing from the caution that RBI held out on unsecured loans it might be pointed out that before the global financial crisis of 2008, credit card dues stood at a high of 1.2% of the total bank credit. The share climbed down to below 1% after a number of defaults and cleaning up of books by the banks. The share remained at sub 1% level for the next 10 years.
The share of credit card outstanding dues went back above 1% in 2019 and has been inching up since then.
The report mentioned that banks now maintained that they are not issuing credit cards indiscriminately but giving them only to creditworthy customers.
They have also pointed out that credit card penetration is one of the lowest in the world at a mere 5% of the population. The share is lower than in many developing countries, an executive of a private bank claimed to the newspaper.