Credit Card Crisis: Public Sector Banks Suffer, Record 12.7 Per Cent Bad Loans Ratio In Sep 2024

Overall, outstanding credit card dues in India stood at Rs 2.9 lakh crore as of January 24, 2025, reflecting a 13 per cent year-on-year rise, according to the Reserve Bank of India (RBI).

The surge in PSBs' credit card stress could be traced back to post-pandemic growth in unsecured lending.

Source : Freepik

Public sector banks (PSBs) are struggling with significant credit card bad debts, particularly from cards issued between September 2021 and October 2023. This period, notably, was marked by aggressive expansion by the state-owned lenders amid intense competition from fintech firms.

According to Care Ratings data, the bad loan ratio in PSBs' credit card portfolios reached 12.7 per cent by the end of September 2024, in comparison to 2.1 per cent reported by private banks. 

Sanjay Agarwal, senior director, Care Ratings, explained, "Higher bad loan ratios in public sector banks could be attributed to the more aggressive distribution of credit cards," reported The Economic Times.

"State-run banks promote financial inclusion by extending credit to a broader segment of the population with limited credit histories, while private sector banks target consumers with stronger credit profiles," the executive noted.

Overall, outstanding credit card dues in India stood at Rs 2.9 lakh crore as of January 24, 2025, reflecting a 13 per cent year-on-year rise, according to the Reserve Bank of India (RBI). Care Ratings pegged the sector-wide credit card bad loan ratio at 2.2 per cent in September 2024.

Meanwhile, the data showed that PSBs accounted for 24 per cent of the total 109 million credit cards in circulation. Among them, SBI Cards, BoB Cards, and Canara Bank collectively held 94 per cent of state-run banks' total outstanding credit card loans, RBI data revealed.

SBI Cards, the country’s second-largest credit card issuer, recorded a gross credit cost of 9.4 per cent at the end of December 2024, with its gross non-performing asset (NPA) ratio at 3.2 per cent.

Meanwhile, BoB Cards reported a gross bad loan plus write-off ratio of 6.8 per cent by December, an improvement from 9.6 per cent logged in March 2024.

Post-Pandemic Expansion and Regulatory Crackdown

The surge in PSBs' credit card stress could be traced back to post-pandemic growth in unsecured lending.

Citing Dhaval Gada, Fund Manager, DSP Mutual Fund, the report said, "Most of the pain is coming from lower ticket-size cards that were issued mainly during September 2021 and October 2023. It was a period when competitive pressure from fintechs had forced some of these banks, large PSUs as well as mid-sized private lenders, to grow aggressively. Some players had also ventured into markets beyond the top eight cities by easing underwriting filters."

Following the initial spike in delinquencies after the Covid-induced lockdown, fintech firms introduced innovative credit products, such as buy now-pay later schemes and e-commerce checkout financing, to encourage consumer spending.

In response, state-run banks leveraged their branch networks to expand their credit card customer base beyond major metropolitan areas. In contrast, large private banks remained cautious, primarily offering cards to existing customers.

However, regulatory actions disrupted the unsecured lending landscape. "The regulatory crackdown on fintechs and, subsequently, on overall unsecured lending, meant that customers - mainly in the sub-Rs 50,000 category - could not avail credit facilities for rolling over," the report noted quoting a senior official from a mid-sized private sector bank.

Industry experts believe the worst may not be over. Gada suggested that credit costs in PSU banks' card portfolios have yet to peak. The RBI earlier intervened to manage stress in unsecured lending by increasing risk weights on consumer credit and bank loans to non-banking finance companies (NBFCs) in November 2023. In early 2024, the regulator tightened norms for co-branded credit cards, requiring fintech issuers to display banking partners' names prominently.