Credit card delinquencies rise even as retail credit growth moderates

Balance-level delinquencies in credit card segment stood at 1.8 per cent in Q1FY25 - highest among all other credit divisions

Balance-level delinquencies in the credit card segment saw a 17 basis points (bps) year-on-year (Y-o-Y) rise in the quarter ending June 2024 (Q1FY25). In all other credit segments, including personal loans, delinquencies declined even as retail credit growth moderated, consequent to banks tightening the supply of credit to the unsecured segments, a report by TransUnion CIBIL said on Monday.

Data shows that balance-level delinquencies, measured in terms of 90 days or more past due, in the credit card segment stood at 1.8 per cent in Q1FY25– highest among all other credit segments.

Delinquencies in the credit card segment have been increasing in the past few quarters. They stood at 1.7 per cent, up 14 bps Y-o-Y in March 2024, and at 1.68 per cent in September. Similarly, in June 2023, delinquencies in this segment stood at 1.68 per cent, up 17 bps.

 

The other credit segments that the bureau has included in its report include mortgage loans, loan against property (LAP), auto loans, two-wheeler loans, personal loans, credit cards, and consumer durable loans.

While delinquencies in the home loan segment stood at 0.9 per cent in June 2024, LAP, auto loans, personal loans, and consumer durable loans reported delinquencies of 1.6 per cent, 0.6 per cent, 1.2 per cent, and 1.4 per cent, respectively.

“The credit market indicator (CMI) for consumer performance improved by six points from 96 in June 2023 to 102 in June 2024, reflecting the continued improvement in overall balance-level serious delinquencies across most product categories,” the report said, adding that in contrast to all other credit products, credit cards showed a marginal increase in delinquencies, continuing the trend set over the last four quarters.

The CMI for June 2024 was 101, which was the same in June 2023. The indicator has remained consistently above 100 since June 2022, highlighting healthy retail lending trends in India, the report said.

According to Saurabh Bhalerao, Associate Director, CARE Ratings, credit card delinquencies have historically been higher (excl. education loans) compared to other segments within the personal loan segment. However, this segment is relatively small, comprising only about 5 per cent of the overall personal loan portfolio in the banking sector.

“The rise in delinquencies could indicate new-to-credit (NTC) customers who are having difficulty paying their dues on time or are not generally in tune with the credit card payment behavior aka financial literacy. This is also in tune with the increase in cards in force which have risen significantly,” he said.

The report also highlighted that there was a decline in the rate of originations (new accounts opened) across the most popular credit products. According to data, home loan originations dropped by 9 per cent in volume, while credit card originations declined by 30 per cent Y-o-Y and two-wheeler loans were the only credit products that had double-digit growth in volume and value.

Additionally, the share of NTC consumers in originations dropped from 16 per cent in June 2023 to 12 per cent in June 2024 – the lowest share recorded by TransUnion CIBIL for this segment.

“Timely regulatory guidance and given the relatively high credit-deposit ratio, we are witnessing a moderation in retail credit growth. Lenders can now look at identifying pockets of deserving consumers across risk segments to provide access to credit for them while driving the next phase of sustainable retail credit growth,” said Rajesh Kumar, MD & CEO, TransUnion CIBIL.

Flagging high growth in certain components of consumer credit, the Reserve Bank of India (RBI) in November 2023, increased the risk weights for bank lending to consumer credit, including personal loans but excluding housing loans, education loans, vehicle loans and gold loans, by 25 percentage points to 125 per cent. This regulatory move led to a majority of banks calibrating growth in their unsecured portfolios.