CREDIT CARDS IN INDIA
Overview
- The share of retail loans in total credit outstanding by scheduled commercial banks has grown from 19% in FY16 to 29% in FY23. Outstanding retail loans by scheduled commercial banks have nearly tripled in the last seven years, growing at a CAGR of 17%, from INR 1.4 lakh crore in FY16 to INR 4.1 lakh crore in FY23. Within retail loans, loans against credit cards have grown at a CAGR of 26% during this period, from INR 38 thousand crore in FY16 to INR 1.94 lakh crore in FY23.
- While credit growth in most sub-sectors of retail loans have witnessed a moderation in Q1 FY24, growth in loans against credit cards, gold jewellery and education loans has recorded significant growth. Credit growth in credit cards increased to 31.9% on-year in Q1 FY24 compared to 29.9% the previous quarter.
- This surge in retail lending (currently constituting ~30% of the total credit), can be attributed to the ebbing of the COVID-19 pandemic, improving prospects of employment and economic situation and burgeoning of digital lending platforms.
- According to the data shared by the RBI in reply to an RTI, credit card defaults have risen by INR 951 crore, to INR 4,073 crore in FY23 from INR 3,122 crore in FY22. Although the retail segment played a critical role in bank credit recovery process, concentration of banks’ loan portfolio in unsecured lending can have serious macroeconomic and financial implications.
- The RBI however, has raised concerns over this rise in unsecured lending on financial stability. In addition to this, the RBI has highlighted concerns over the growing risk of delinquencies on unsecured loans amidst high interest rates and high inflation.
Key Trends - Credit Cards in India
- Number of credit cards issued by SCBs grew at a CAGR of 20% over the last seven years. Private banks lead the credit card market with 70% of the total cards issued, followed by public sector banks at 24%.
- Average spend per credit card has grown at a CAGR of 7.6% from INR 9,094 in FY16 to INR 14,924 in FY23. During this period, Consumer Price Index grew at a CAGR of 4.9%.
- Credit cardholders have increased their leverage in the last two years. While incremental loans on credit cards have almost quadrupled form FY21 to FY23, transaction value on credit cards has doubled during the same period.
- While GNPA ratio in retail loans has come down to 1.4% in FY23, compared to 1.8% in FY22, GNPA ratio of credit card receivables has increased to 2.02% in FY23 compared to 1.9% in FY22. Public sector banks seem to be faring poorly with credit card GNPAs at over 10%.
- Rising delinquencies in credit card loans needs some attention and caution. There are talks that the RBI might increase risk weights on unsecured personal loans and outstanding credit card balances
Credit card loans outstanding (SCBs) grew at a CAGR of 26%
Credit card outstanding stood at ~2 lakh crore in Q1 FY24
Credit card loans outstanding (SCBs) grew at a CAGR of 26%
Credit card outstanding stood at ~2 lakh crore in Q1 FY24
Point of sale transactions have grown at a CAGR of 12% (FY16-FY23)
Private banks account for ~70% of e-commerce transactions
Point of sale transactions have grown at a CAGR of 12% (FY16-FY23)
Private banks account for ~70% of e-commerce transactions
Credit cards issued has grown at a CAGR of 20% (FY16-FY23)
Per card spend grew at a CAGR of 7.3% (FY16-FY23)
Credit cards issued has grown at a CAGR of 20% (FY16-FY23)
Per card spend grew at a CAGR of 7.3% (FY16-FY23)
GNPAs falling in retail loans but rising in credit cards
Both public and private sector witness rising credit card defaults
GNPAs falling in retail loans but rising in credit cards
Both public and private sector witness rising credit card defaults
FY23 ratios are as per RBI’s reply to an RTI query
Credit card defaults rise by 30.5% in FY23
Cardholders increasing their leverage post-pandemic
Credit card defaults rise by 30.5% in FY23
Cardholders increasing their leverage post-pandemic
FY23 figures are as per RBI’s reply to an RTI query
Leverage ratio = Incremental credit card outstanding loans by SCBs/ Value of credit card transactions
Professional collection companies can help reduce credit card GNPAs
- Lenders in India spend ~1% of the AUM on collections.
- Debt collection is the primary business of collection companies. They conduct their operations in an effective and efficient manner which can help credit card companies optimize the cost of collections. They generally work for multiple lenders, which allows scalability and resource management in a very efficient manner.
- Professional collection companies offer continuous monitoring, phygital collections, analytics, and legal action services. These companies employ new age technologies and predictive analytics to conduct their business in a formal and transparent manner.
- Engaging a professional collections company helps lenders manage a wide variety of risks – Strategic, Reputation, Compliance, Operational, Legal etc.
Source : RBI, TruBoard Research
TruQuest is knowledge series launched by TruBoard Partners providing succinct updates and views on:
- Liquidity outlook
- India’s macro economic view
- Trends within the infrastructure, Real Estate and Renewable Energy sectors
- Impact analysis of new regulations and policies on lending and capital flow
Author:
Anuj Agarwal. Chief Economist
Ria Rattanpal, Research Associate
Komal Chavan, Marketing Associate
Team:
Anuj Agarwal. Chief Economist
Ria Rattanpal, Research Associate
Disclaimer
The data and analysis covered in this report of TruQuest has been compiled by TruBoard Pvt Ltd and its associates (TruBoard) based upon information available to the public and sources believed to be reliable. Though utmost care has been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate or complete. TruBoard has reviewed the data, so far as it includes current or historical information which is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Information in certain instances consists of compilations and/or estimates representing TruBoard’s opinion based on statistical procedures, as TruBoard deems appropriate. Sources of information are not always under the control of TruBoard. TruBoard accepts no liability and will not be liable for any loss of damage arising directly or indirectly (including special, incidental, consequential, punitive or exemplary) from use of this data, howsoever arising, and including any loss, damage or expense arising from, but not limited to any defect, error, imperfection, fault, mistake or inaccuracy with this document, its content.