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Financials
Public Sector Banks (PSBs) in India are facing significant challenges due to a surge in credit card bad debt. As of September 2024, PSBs reported a bad loan ratio of 12.7% in their credit card portfolios, which is notably higher than the 2.1% reported by private banks during the same period[1][2]. This trend reflects the aggressive distribution of credit cards by PSBs, often targeting customers with limited credit histories, in an effort to promote financial inclusion and compete with fintech firms.
The increase in bad debt can be traced back to the post-pandemic period when there was a boom in unsecured lending. PSBs expanded their credit card offerings aggressively, particularly between September 2021 and October 2023, to accommodate growing consumer demand and compete against innovative fintech products like buy-now-pay-later schemes[1][2]. This strategy, while aimed at promoting financial inclusion, exposed PSBs to higher risks due to the lower credit profiles of some of their customers.
The high bad debt ratio in PSBs' credit card portfolios has significant implications for the banking sector as a whole. It not only affects the financial health of PSBs but also influences the overall stability of the banking system. Moreover, the rising credit card defaults require banks to allocate more resources towards provisioning for these debts, potentially constraining their ability to lend and support economic growth.
Major PSBs such as SBI Cards and BoB Cards are among those significantly impacted by the bad debt crisis. SBI Cards reported a gross credit cost of 9.4% and a gross non-performing asset (NPA) ratio of 3.2% as of December 2024[1][2]. BoB Cards, while improving from previous months, still had a gross bad loan plus write-off ratio of 6.8% by the end of 2024[1][2].
To mitigate the impact of rising bad debt, PSBs and regulatory bodies are exploring several strategies:
The issue of credit card debt is not unique to India. In the United States, for instance, delinquency rates are expected to rise for the fifth consecutive year in 2025, driven by factors like inflation and higher interest rates[3][4]. However, there are signs of stabilization in the U.S. consumer credit market, with delinquency rates among non-subprime borrowers remaining stable[5].
The challenge of credit card bad debt poses significant risks for PSBs and highlights the need for a balanced approach between financial inclusion and credit risk management. As the banking sector navigates these challenges, adopting more stringent lending standards and improving regulatory oversight will be crucial in stabilizing the credit card market and ensuring long-term financial stability.
