Banks sound alarm on credit card spending
The surge of growth in retail loans, especially credit card loans, may lead to consumer debt levels similar to the pre-2008 crisis, according to State Bank of India (SBI), the country’s largest lender.business Updated: Apr 25, 2016 16:24 IST
The surge of growth in retail loans, especially credit card loans, may lead to consumer debt levels similar to the pre-2008 crisis, according to State Bank of India (SBI), the country’s largest lender.
“The current increase in bank lending has mostly been to the personal loan segment. Moreover, within personal loans, it is the credit card loan segment that is rising rapidly, indicating a rise in consumer indebtedness. Household debt as measured by credit outstanding per credit card in India has been rising even in real terms (after being adjusted for inflation),” said Soumya Kanti Ghosh, chief economic adviser, SBI.
Credit card and other personal loans, grew 23.6% and 28.7% in February, respectively, compared to the same month last year, according to the Reserve Bank of India.
Other personal loans are unsecured small loans. These loans can be used as per convenience without being monitored.
Total retail loans, which includes credit card and other personal loans along with loans for housing, consumer durables, education and vehicles, grew 19.2% during the period.
Speaking to HT, Ghosh said: “Even though loan growth is not yet at the pre-financial crisis levels, it should be watched with caution as most households’ debt is from credit cards.”
According to February data, retail loans stood at Rs 13,74,900 crore, of which unsecured personal loans and credit card loans accounted for Rs 2,98,200 crore and Rs 38,500 crore, respectively.
A senior official of a large public sector bank said: “Credit card is a cause of worry, always, as it is unsecured.”
India’s second-largest private lender HDFC Bank, which had 51% loans in the retail segment in March, saw credit card loans grow 27%.
Sumant Kathpalia, country head at IndusInd Bank said: “It is worrisome when growth of such nature takes place as there could be over-leveraging and some brash players could distort the repayment scenario.”