During the period, banks brought down overall gross NPAs from Rs 6.97 lakh crore (5.89 per cent of advances) in March 2022 to Rs 4.56 lakh crore (2.79 per cent) by March 2024, NPAs in the personal loan segment surged by 51 percent to Rs 11,210 crore.
The banking sector in India has successfully decreased the total Non-Performing Assets (NPAs) over the last two years, with overall gross NPAs falling to Rs 4.56 lakh crore (comprising 2.79 percent of total advances) in March 2024, down from Rs 6.97 lakh crore (accounting for 5.89 percent of total advances) in March 2022.
However, within this context of declining total NPAs, there has been a notable rise in NPAs associated with personal loans and credit cards. According to a report by the Indian Express that cited an answer to a Right to Information (RTI) appeal filed by the national daily, NPAs in the personal loan sector surged by 51 percent to Rs 11,210 crore (comprising 1.16 percent of advances) in June 2024, compared to Rs 7,422 crore (comprising 0.93 percent of advances) in March 2023. The report further indicated that NPAs increased by Rs 1,522 crore in the three months leading up to June 2024, rising from Rs 9,688 crore in March 2024.
Similarly, NPAs related to credit cards have also escalated, with a 136 percent increase to Rs 5,679 crore, or 2.04 percent of advances, in June 2024, compared to Rs 2,404 crore, which constituted 1.82 percent of advances in March 2020. Additionally, NPAs in the credit card segment rose by 39.46 percent from Rs 4,072 crore in March 2023.
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When does an account turn into an NPA?
Personal loans and credit cards are classified as unsecured lines of credit, meaning they are issued without collateral. Typically, unsecured loans carry higher interest rates than secured loans, where the borrower pledges an asset as collateral. Financial institutions categorise a loan account as an NPA when the interest or principal payment due has not been received for more than 90 days past the due date.
When a credit card holder fails to settle their credit card bill on the date of repayment within the billing cycle, the bank charges an interest rate, which ranges from 42 to 46 percent per annum on the unpaid balance. This also adversely affects the person’s credit score.
RBI’s Risk Weight Regulation
In early 2023, the Reserve Bank of India (RBI) raised the risk weight for consumer credit, credit card loans, and bank lending to non-banking financial companies (NBFCs) by 25 percent. This decision was intended to mitigate the accumulation of risks faced by lending institutions when extending such loans.
“Even as inquiry volumes remain robust, the impact of increase in risk weights on certain segments of consumer credit pulled down the rate of growth in overall consumer credit, especially personal loans and credit cards,” the RBI noted in its Financial Stability Report (FSR).
Also Read: Personal Loan vs Business Loan: Which is Better for you?
Rising Credit Card Usage and Increasing Outstanding Amounts
The usage of credit cards is witnessing significant growth, with the total value of credit card transactions nearly tripling to Rs 18.31 lakh crore during the fiscal year 2024, up from Rs 6.30 lakh crore in March 2021, according to the report. Monthly expenditures by cardholders reached Rs 1,76,202 crore in September 2024. Additionally, the number of credit cards issued by banks rose to 10.61 crore as of September 2024, compared to 9.3 crore in September 2023.
While the increase in the issuance of credit cards and the rise in monthly spending reflect a growing trend in credit card usage, the outstanding credit card balance, which is the amount owed by users, are also on the rise. As of October 2024, credit card outstanding amounts have surged to Rs 2,81,392 crore, compared to Rs 2,49,635 crore in 2022.
