Yes, credit card debt is growing, but it is nowhere close to the levels of 2008
Credit growth for the fortnight ended 8 July was 9.8% from a year ago, still below the 10% mark, according to the Reserve Bank of India
Mumbai: Bank credit growth continues to be in the dumps. The latest reading from the Reserve Bank of India shows that credit growth for the fortnight ended 8 July was 9.8% from a year ago, still below the 10% mark.
But the one area which has been driving growth in recent times is personal loans. This category grew 19% from a year ago in May, the latest month for which granular data is available. Within personal loans, the fastest growing has been credit card debt, leading to fears that this sector will see a fresh crop of bad loans. When economic growth decelerated following the 2008 crisis, there were many defaults on credit cards and unsecured loans following which banks cut down on this business.
In April, credit card debt outstanding grew at 31.2%, the highest since September 2008. The pace continued in May with a 30% growth. Credit card debt has crossed ₹ 421 billion compared to a peak of ₹ 270 billion in 2008. Another category called “other personal loans", which is mostly unsecured debt, follows closely behind with a 27.2% growth in May.
Have banks been returning to their cowboy lending ways of the pre-2008 years?
The short answer is no. As the chart shows, the overall non-food credit base has also increased in recent years. The personal loans category as a proportion of non-food credit is just 21.7%, about 5 percentage points lower than it was in April 2007. Similarly, credit card loans make up just 0.64% of non-food credit, about half of where they were in February 2008.
Bankers are also more cautious now about advancing credit card debt, and are tying up with credit information bureaus. They are also avoiding issuing duplicate credit cards and minimising concentration risk. Banks had issued 24.5 million credit cards at the end of March this year, a number still lower than 28.23 cards that were issued by March 2008.
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