Credit offtake low, but card debt surges 30%to over ₹40Kcr
MUMBAI: Witnessing a rise similar to the pre-crisis period, credit card loans have witnessed a 30% growth with outstanding debt at ₹42,100 crore as on May-end 2016.
The unsecured loans, or debt that does not have specific property serving as collateral for payment, accounted for 2.9% of the total outstanding personal loans, and less than 1% of the total loans, according to the Reserve Bank of India data.
Factors such as low credit demand from the large corporate industry, and less default levels in personal, or retail loans, in the recent years, have led to the rise in credit card debt.
A State Bank of India report recently said the surge in retail loans, especially credit card mortgage, may lead to rise in consumer debt levels similar to the pre-2008 crisis. That time, the personal loan segment rose to 23% by 2006 from 12% in 2001, and declined subsequently.
“Our delinquencies are marginally declining. Credit-bureaus strengthening have made lenders cautious and conservative unlike in the past. There is also fear of spoiling the credit history as people will need more loans in future. Third factor is that the talented youngsters are entering into high-paying jobs, which is leading to more spends by cards,” Vijay Jasuja, CEO, SBI Card (arm of SBI), recently told HT.
Banks had slowed on the credit card loans after the 2008-09 crisis and almost stopped offering cards to non-customers, which is restricted even now. Lenders largely offer credit cards to customers as this helps them view their credit history and assess repayment capacity.
Led by HDFC Bank, SBI and ICICI Bank, the total credit cards in the market stand at 24.5 million as on March-end this year, witnessing a 16% growth from last year’s 21.1 million.
“Credit card is still with about 1.4% of the population. Now, India is developing a lot of purchasing power among customers. So in next 5-10 years, we will have over 15% growth in the credit card market,” Jasuja added.
Despite higher interest rate in comparison to the secured loans, banks will continue to focus on credit card debt until demand picks up in the larger industry, due to the high-yield.
The RBI-led National Payments Corporation of India, which controls 35% of the debit card market in terms of volumes, also expects to launch its credit cards before the year-end.
“Retail continues to drive growth at about 20% year-onyear, largely led by housing loans; some private banks are getting aggressive in unsecured lending. Our study does not suggest an improvement in corporate loan growth as fresh capex is still elusive as the focus is on deleveraging the balance sheet at this point in time,” said a report Kotak Institutional Equities.