The usage of credit cards in India is continuously on the rise, with an estimated 97.9 million credit card users in the country as of December 2023, indicating a growth of approximately 20.6% compared to the previous year.
Currently, credit cards are the fastest-growing category in retail loans. However, for regulators, this has become a concern as this category includes individuals with not-so-healthy credit scores.
What’s Happening?
In November 2023, the Reserve Bank of India imposed high-risk weights on unsecured loans, despite which banks saw a 34% increase in outstanding credit card balances, reaching Rs 2.4 trillion. This constituted 5% of the total retail loan portfolio for banks.
According to economists at the Reserve Bank of India, the majority of this credit card debt is held by individuals with lower economic means. Subprime category individuals have an average outstanding balance of approximately Rs 40,000, while near-prime borrowers carry about Rs 60,000 in outstanding balances. In simpler terms, some people are using credit cards for expenses, but are not paying their credit card bills. If this trend continues, it could pose a challenge for banks.
Current Scenario in the Credit Card Segment in India
According to the RBI, the use of credit cards in India is growing rapidly, and the total number of credit card users is expected to reach 100 million soon.
RBI data reveals that in December 2019, there were only 55.53 million credit card users, which surged to 97.9 million by December 2023, with 1.9 million new users added in December alone.
HDFC Bank maintained its lead among the main players, with 19.81 million credit cards in circulation.
What’s in it for Investors?
While the credit card segment in India is growing rapidly, it is becoming a matter of concern. The Reserve Bank of India, on November 16, increased the cost of funds, making credit card and personal expenditures more expensive for both banks and other lenders.
What’s Next?
Over the past two decades, retail loans have played a crucial role in the growth of Indian banks, outpacing corporate loans. Currently, India has a population of approximately 1.43 billion, with nearly 100 million people using credit cards. This means that only about 7% of the population in India is currently using credit cards. In simple terms, there is a substantial market in India that has yet to be tapped.
In conclusion, the credit card segment is the fastest-growing segment in retail loans. However, with banks issuing credit cards to attract customers, overlooking crucial aspects such as poor credit scores and minimum income, there is a potential risk of increasing non-performing assets (NPAs) for banks.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
