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.
36 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)