Credit Cards Slippages Remain Elevated Says RBI Bulletin

 Mumbai: While accretion of bad loans in various retail loans such as vehicle loans and gold loans have shown moderation, they continue to remain high for credit cards as at December 2023 said the Reserve Bank of India’s (RBI) September Bulletin. The RBI data showed that for credit cards, the slippage ratio (accretion of non-performing assets) rose from 2 per cent in December 2022 to 2.5 per cent in December 2023. In comparison, slippage ratio for consumer durable loans (1.5 per cent in December 2022 to one per cent in December 2023) auto loans (2 per cent to 1.5 per cent), gold loans (1.25 per cent to one percent),Microfinance loans (1.45 to one per cent) showed a moderation duringthe same period.

The trend was visible in the earnings reported by SBI Cards and Payment Services that reported flat net profits of Rs 594 crore for the first quarter of the fiscal year, despite facing increased impairment losses due to rising delinquencies. The SBI-promoted credit card issuer had posted a net profit of Rs 593 crore during the same period last year. The rise in delinquencies impacted the company'sfinancial performance. SBI Card’s gross non-performing assets (NPAs) climbed to 3.06 per cent of gross advances as of June 30, 2024, up from 2.41 per cent a year ago.

Given that the credit cards were growing at a high pace, the RBI as a pre-emptive measure hiked the risk weights in this segment. The central bank increased the risk weights for credit cards receivables for Non-Banking Finance Companies (NBFCs) from 100 percentage points to 125 per cent in November 2023. “The slippage ratios in important categories of retail loans such as, inter alia, vehicle loans and gold loans, have been elevated vis-à-vis other sectors, although they have moderated at end December 2023 except in credit card receivables segment,” said the RBI. The central bank said that with the increase in risk weights on some categories of retail loans, NBFCs with a large portfolio of unsecured loans may require additional capital to adhere to regulatory capital requirements. However, the sector as a whole, remains well-capitalised, indicating their financial readiness to meet higher requirements. Says Anil Gupta, senior vice-president and co-group head (financial sector ratings) at ICRA Ltd, “Credit cards are the highest cost loans. If a borrower has to default, the last loan that he will pay will be the highest interest cost unsecured loan. So, the default rate will first go up in the costliest source of borrowing which is the credit card and the last one to default will be a home loan or a gold loan.”