A customer uses a credit card to make a contactless payment (Photographer: Simon Dawson/Bloomberg)

Credit Card Debt, Personal Loans Spike On Festive Demand

Festival season buying led to a spike in credit card debt and unsecured loans.

Outstanding credit card loans jumped 39 percent year-on-year to Rs 59,900 crore in September, while other personal loans rose 37 percent to Rs 4.47 lakh crore, according to monthly data released by the Reserve Bank of India. Overall retail loans rose 16.8 percent year-on-year to Rs 17.5 lakh crore.

People are getting more comfortable with using credit cards, said Vijay Jasuja, chief executive officer at SBI Cards & Payment Services Pvt Ltd. “A majority of these spends are paid back in full, soon after the purchase,” he said. “The industry average of rolling over credit is close to 54 percent and there has been no shift in that number.”

Unsecured lending has grown at 30 percent since April as banks have been pushing loans to individuals amid a slow growth in corporate loans. Such loans also carry a higher margin.

You must also keep in mind that banks have been coming up with a lot more innovative products in the unsecured space over the last few years, which has helped customers become more comfortable.
Rajiv Anand, Executive Director, Axis Bank

A rapid growth in unsecured credit tends to be worrisome. That’s what happened during the 2008-09 financial crisis when large companies started laying off employees. Customers had starting defaulting on their credit card and personal loans and delinquencies rose. Banks had weak risk assessment practices and loans were often given to customers with weak credit profiles. They then scaled down such lending.

This time, lenders have been careful while growing their unsecured loan portfolios, said Anand. Axis Bank, for example, has grown this book largely through lending to its own customer base, he said. Banks have a better understanding of the eligibility of own customers and their spending habits, he said.

Delinquencies on unsecured loans range from 1.5-2 percent, which bankers say is manageable.