According to the Reserve Bank of India’s recent report, the percentage of bad loans (GNPAs) from credit card transactions in state-run banks has doubled to 18% by the end of the financial year 2023. This is a significant increase compared to 9% in the previous year and around 15% in September 2022. The report also highlights the central bank’s concerns about the risks associated with unsecured loans, including credit cards, personal loans, and microfinance. Overall, the banking system’s bad loans in the credit card category slightly increased to 2% in FY23.
In contrast, private sector banks and foreign banks experienced relatively stable rates of bad loans from credit cards at 1.9% and 1.8% respectively. The report also mentions that the banking system’s overall bad loans have reached a 10-year low of 3.9% at the end of FY23 and are expected to further improve to 3.6% by the end of FY24 under normal circumstances.
The Reserve Bank of India warns that high inflation and increased borrowing costs can negatively affect households’ finances and their ability to repay loans. This, in turn, can impact lending banks. The report highlights the potential risks faced by households when both inflation and lending rates increase simultaneously, which can put even financially stable households at risk and double the number of risky loans.
