Contribution of credit card loans to non-food credit growth hits all-time high

Mumbai, July 1: The contribution of credit card loans to non-food credit growth hit an all-time high in May 2016, Reserve Bank of India (RBI) data showed. With a rise of Rs 9,722 crore year-on year, credit card debt accounted for 1.92% of the non-food credit growth of Rs 5.07 lakh crore during the month in review.

However, outstanding credit card debt, at slightly more than Rs 42,000 crore, accounted for less than 3% of total outstanding personal loans and less than 1% of total loans.

Analysts attribute the increasing trend in credit card debt to two factors – lower demand for credit from the industry and smaller delinquencies in personal loans in recent years.

“Q1 is generally a quiet period for corporate loans because banks prefer to go through the full year books of a corporate before sanctioning fresh loan. Moreover, due to high delinquencies during and immediately after the GFC, banks had really tightened their nor ms for issuing credit cards. Thanks to this, delinquencies have been very low in unsecured personal loans in recent years, which has made banks very confident while issuing new credit cards,” Vibha Batra, senior vice-president and group head, financial sector rating, ICRA, said. Credit to the industry grew at less than 1% (Y-o-Y) in May.

V Srinivasan, executive director, IDBI Bank, is of the opinion that credit card debt's contribution to nonfood credit will continue to rise until there is an uptick in demand from corporates. He also gives credit to credit information bureaus and rising awareness among people that non payment of credit card debt could ruin their chances of getting any kind of loans, which has led to lower delinquencies, giving more confidence to banks to issue new credit cards. "Given the high yield available in credit card debt, even when compared to other personal loans, banks will continue to focus on them until demand picks up in the industry," he added.

Most, however, are also of the opinion that such a rise in credit card debt should not be seen as a concern because not only the due diligence before issuing a credit card increased in the last few years, but also outstanding credit card debt, as a percentage of non-food credit, is nowhere close to where it was before the financial crisis.

Credit card debt at the end of May 2016 was less than 0.65% of non-food credit in the economy, compared to well over 1% for several quarters till H2FY09.