30/09/2024
India’s credit card market has undergone a significant transformation, evolving from a luxury product to a crucial financial tool. As of February 2024, more than 100 million credit cards have been issued, and credit card spending has surpassed USD 220 billion for FY24. The market is led by prominent players such as HDFC Bank, State Bank of India, ICICI Bank, and Axis Bank, with a compound annual growth rate (CAGR) of 12% over the past four years. Active credit cards have increased from 57.7 million in FY20 to over 101 million in FY24, driven by reduced entry barriers and diverse co-branded offerings.
However, this expansion comes with rising credit card dues and an increase in defaults, signaling growing financial distress among borrowers. Credit card defaults rose to 1.8% in June 2024 from 1.7% in December 2023 and 1.6% in March 2023, according to data from TransUnion Cibil. While the percentage increase may seem small, the absolute value of outstanding credit card dues has grown substantially. In June 2024, credit card outstanding reached nearly Rs 2.7 lakh crore, up from Rs 2.6 lakh crore in March 2024 and Rs 2 lakh crore in March 2023. In comparison, before the pandemic in March 2019, the total card outstanding was Rs 87,686 crore, representing a CAGR of 24% over the five-year period.
Indians are increasingly delaying repayments on credit cards and personal loans, leading to a rise in delinquencies. Credit card dues delayed by over 90 days increased by 17 basis points year-on-year to 1.8% in June 2024. Lenders have also seen a spike in bad loans, with TransUnion Cibil providing an industry-wide estimate of this growing trend.
Credit card customers are generally divided into two groups: transactors, who pay their dues in full by the due date, and revolvers, who make partial payments to avoid default but accrue interest. The latter group is more vulnerable to financial stress, contributing to the rise in delinquencies.
In personal loans, there was a slight improvement, with delinquencies down by 2 basis points in June 2024 compared to the previous year. However, vintage delinquencies, or delayed repayments within the first 60 days of loan origination, increased from 8.8% in December 2022 to 9% in December 2023.
To address growing financial risks, the Reserve Bank of India (RBI) has mandated that borrower information be reported to credit information companies every two weeks, starting January 2025, instead of the current monthly schedule. This aims to provide real-time monitoring of financial distress and loan performance.
Credit cards, being one of the costliest forms of unsecured borrowing, are more susceptible to defaults. The slippage ratio for credit cards rose from 2% in December 2022 to 2.5% in December 2023, while other loan types like consumer durable, auto, gold, and microfinance loans showed moderation during the same period. Borrowers typically prioritize paying off lower-interest loans, such as home loans and gold loans, before defaulting on high-interest credit card debt.