Credit card data released by the Reserve Bank of India (RBI) has revealed that there has been a negative growth of three per cent in the first five months of the current fiscal year with the total outstanding amount at over Rs 1 lakh crore.
Over the past few months, bankers have turned cautious while issuing credit cards, reported Business Today. The report went on to say that banks are nervous in increasing their exposure to weak customers, especially those with a history of payment delays and defaults.
The report noted that the first signs of danger are visible at the card subsidiary of India’s largest public lender, State Bank of India (SBI). SBI Cards & Payments, the second-largest card issuer in the country, has witnessed its gross NPAs doubling to 4.29 per cent in the second quarter of 2020-21.
It may be noted that this spike in gross NPAs is despite the six-month loan moratorium that ended on August 31 this year. Now, most banks are offering are two-year restructuring to people who are unable to pay their existing loans due to income or job loss.
As mentioned earlier, the credit card outstanding data released by the RBI this year show that over Rs 1 lakh crore is at risk due to the economic slowdown triggered by Covid-19.
The overall credit card business has registered a negative growth of 3 per cent in the first five months of 2020-21, compared to 10 per cent growth in the corresponding period last year.
There are high chances that banks will grow more cautious as more people default on such unsecured loans. While there has been high growth in the personal loans and credit cards segment in the last five years, they are likely to slow down due to a higher number of delinquencies.
A slowdown in the world economy means India is not the only country which will see a higher number of defaults. Banking regulators around the world are expecting defaults to rise due to the Covid-induced economic slowdown.
It is likely that many people will default on their credit card dues and personal loans if there is a prolonged economic slowdown.
However, experts are of the view that the large-scale NPAs will not come to the fore now, but two years later as most banks have allowed a two-year restructuring for stressed borrowers. The Business Today report noted that SBI Cards & Payments had already converted Rs 21.08 crore outstanding balance under the restructuring scheme.
The RBI’s report is an indication that India’s could see a higher number of defaults in the next two years due to the economic impact of Covid-19. While RBI has asked banks to create a 10 per cent provisioning to tackle defaults, it is unlikely that it will be enough if there is a sharp rise in NPAs.