Indian banks have proudly showcased their success in reducing overall non-performing assets (NPAs) over the past two years. However, beneath this progress lies a concerning trend: a sharp rise in NPAs within the personal loan and credit card segments, indicating growing borrower indebtedness.
Spike in Personal Loan NPAs
Data from the Reserve Bank of India (RBI) reveals that NPAs in personal loans surged by 51%, from ₹7,422 crore (0.93% of advances) in March 2023 to ₹11,210 crore (1.16%) by June 2024. This ₹3,788 crore increase highlights the growing strain on borrowers. Notably, NPAs rose by ₹1,522 crore in just three months, from ₹9,688 crore in March 2024 to June 2024.
| Year | NPAs (₹ crore) | NPA to Advances Ratio (%) |
|---|---|---|
| FY23 | 7,422 | 0.93 |
| FY24 | 9,688 | 1.83 |
| June 2024 | 11,210 | 1.16 |
This rise comes even as banks reduced overall gross NPAs from ₹6.97 lakh crore (5.89% of advances) in March 2022 to ₹4.56 lakh crore (2.79%) in March 2024, demonstrating the challenge of controlling unsecured loan defaults despite broader improvements.
Credit Card NPAs See a Steep Increase
Credit card NPAs showed an even sharper rise, growing by 136% from ₹2,404 crore (1.82%) in March 2020 to ₹5,679 crore (2.04%) by June 2024. Between March 2023 and June 2024 alone, NPAs in this segment rose by nearly 39%, from ₹4,072 crore to ₹5,679 crore.
| Year | NPAs (₹ crore) | NPA to Advances Ratio (%) |
|---|---|---|
| FY20 | 2,404 | 1.82 |
| FY21 | 4,935 | 3.56 |
| FY22 | 3,122 | 1.91 |
| FY23 | 4,072 | 1.94 |
| FY24 | 4,870 | 1.84 |
| June 2024 | 5,679 | 2.04 |
Both personal loans and credit card debt are unsecured in nature, carrying high-interest rates. Borrowers unable to meet repayment deadlines face penalties, high interest (up to 46% annually), and plummeting credit scores.
RBI’s Risk Mitigation Measures
In November 2023, the RBI increased the risk weight for banks’ exposure to consumer credit, including credit cards, by 25%, bringing it up to 150%. This step aimed to curb risks associated with these segments. While it slowed the growth rate of personal loans and credit cards, stress on asset quality remains evident.
Factors Behind Rising NPAs
A report by India Ratings pointed to multiple reasons for the rise in NPAs:
- Increasing competition among lenders.
- Pressure on cash flows in certain borrower segments.
- Field-level challenges, such as staff attrition and lower recovery rates.
- Overleveraging by borrowers.
Rising Credit Card Usage
Despite these challenges, credit card usage in India is booming. The value of credit card transactions tripled over three years, from ₹6.30 lakh crore in March 2021 to ₹18.31 lakh crore by March 2024. Monthly spending by credit card users crossed ₹1.76 lakh crore in September 2024, compared to ₹72,319 crore in March 2021.
The number of credit cards issued also rose significantly, reaching 10.61 crore in September 2024, up from 6.20 crore in March 2021. However, credit card outstanding balances climbed to ₹2.81 lakh crore in October 2024 from ₹2.49 lakh crore in 2022.
Luring Customers but Creating Risks
Banks have attracted customers to credit cards with rewards, loan offers, and benefits like airport lounge access. However, a bank official cautioned that failing to clear dues within the interest-free period can lead to interest rates of up to 42%, potentially trapping users in debt.
Conclusion
While Indian banks celebrate their success in reducing overall NPAs, the growing stress in unsecured loan segments like personal loans and credit cards demands urgent attention. Without proper management and borrower education, the current trends could overshadow the sector’s achievements and pose long-term risks.
