The number of credit cards issued by
January 2025 increased to 10.88 crores from 9.95 crores in January 2024,
indicating a significant increase in credit card use. However, with the rise in
the number of credit cards, non-performing assets (NPAs) in this segment
increased by 28.42% to ?6,742
crores by December 2024 from ?5,250
crores in December 2023. The 91-180 days outstanding liability rate also
increased to 7.6% by June 2024 from 6.5% in June 2023.
The
main reason for the increase in NPA in the credit card segment is not properly
checking the credit eligibility of the applicants while issuing credit cards. Nowadays,
there is so much pressure on credit card issuing banks to increase their
business that they ignore the guidelines for issuing credit cards. They also
give credit cards to people who do not have regular income; if they have
income, their liabilities are high. Due to this, the percentage of defaults in the
credit card segment is constantly increasing.
There
are many reasons for the increase in the percentage of NPA in credit cards,
including economic growth rate slowing down to 6.4% in FY 2025, decrease in job
creation, retrenchment of workers in IT and other sectors, higher interest
rates charged by credit cards per year in case of default, most customers
unaware of the nuances of credit card repayment cycle, people getting lured by
the offer of attractive discounts on purchase of online and offline products
through credit card, etc. For these reasons, borrowers are trapped in the debt
trap.
It
has been seen many times that people take loans from loan apps to repay credit
card debt or other loans, which charge interest rates ranging from 18% to 70%
on the outstanding loan amount, due to which they get trapped in the vicious
cycle of debt. Generally, most people take loans from loan apps like Hero
Fincorp, CreditBee, InCred, IIFL, Tata Capital, Moneyview, MoneyTap, Mpocket,
Zest Money, TrueBalance, PaySense, etc. However, one can avoid getting trapped
in their trap by understanding the interest rate, charges, and other terms of
the loan. To reduce rising defaults and save people from the vicious circle of
debt, the Reserve Bank of India has increased the risk weight on consumer
loans, credit card receivables and non-banking finance companies (NBFCs) by 25%
to 150% in November 2023, so that customers also transact with caution.
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Chinese apps were banned in India in 2020 and returned in 2025. The government
banned these apps for privacy and security reasons. Now, they can be downloaded
from the Google Play Store and the Apple App Store. Many such apps have shifted
all their operations to India and storedata on Indian servers. Many Chinese
apps runentirely on the franchise model, whose entire operations are being
looked after by Indian companies.
It
has also been observed that when customers cannot pay their credit card dues,
the bank gives them a one-time settlement opportunity, and under this, they are
given a discount of a certain percentage of the amount when paying the dues.
This allows the loan to be repaid in a smaller amount, but the customer's
credit score is affected, and the status turns into a settled loan. If your
credit report shows a "Write-off" or "Settled" status, most
banks consider you a high-risk customer. It reduces the chances of the
defaulter getting a loan. Therefore, instead of settling the dues in a one-time
settlement, the customer should contact the bank and request that it relax the
repayment terms.
Further,
after default, the customer's credit score drops significantly. Most banks
prefer to lend to a proposed borrower with a CIBIL score above 750. Banks avoid
lending to such defaulters if the CIBIL score is 600 or less.
Credit
card or loan app defaulters can become eligible for loans despite their settled
status, but only with certain conditions. Defaulters have limited loan options.
For example, they can take gold loans, loans against property, etc. They can
also take loans with the help of a co-applicant or guarantor, or with the help
of someone with a good credit score. In this connection, NBFC or fintech
lenders are more lenient but charge higher interest on the loan.
If
you have a credit card, you need to be cautious at many levels, such as, keep
card information safe, do not share your card number, CVV, PIN or OTP with
anyone, use your card only on secure websites, access websites only after
looking for HTTPS and padlock icons, check account statements regularly, set
transaction alerts via SMS or email for immediate updates, do not use public
Wi-Fi for online shopping or banking, do not save card information on websites
or browsers unless absolutely necessary and safe, use strong passwords and
two-factor authentication, protect your online banking and card-related
accounts with unique passwords, report loss or fraud to the bank and cyber
police immediately, if your card is lost or stolen, immediately report it to
the issuing bank to block it, immediately inform your bank about suspicious
transactions, do not click on suspicious links or respond to emails, texts or
calls asking for card details, always check the sender before giving any
information Verify by talking to the customer, Avoid using the card physically,
Be cautious while handing over your card at public places like restaurants,
theatres etc., Use contactless payments or mobile wallets as far as possible
for added security, Set spending limits, Cut off the chip and magnetic stripe
of old cards to prevent misuse, Use verified payment gateways, Use only trusted
payment portals while shopping online, Avoid entering card details on pop-ups
or unfamiliar pages etc.
In
the light of the above, it would be appropriate to say that defaults in credit
cards and loan apps are increasing due to reasons such as slowdown in the pace
of development, lack of employment generation, high interest rates of credit
cards and loan apps, ignorance of the credit card repayment cycle, tendency to
spend more, high liabilities of credit card holders, falling prey to attractive
discounts, addicting to online gaming, dugs or watching porn videos online etc.
After becoming a defaulter, one should repay the default amount, get a 'No Dues
Certificate', and gradually improve their credit score by managing loan accounts.
Although regulatory measures have been implemented in this matter, many
challenges remain in the unsecured loan sector, the solution of which does not
seem to be emerging shortly, due to which the possibility of improvement in the
state is low.
(Satish Singh is an Ahmedabad-based
Senior Columnis.Views are personal. Cell No-8294586892)
