India’s credit card economy has been booming, but there’s a downside. While the rise of digital payments and credit access has made life more convenient for many, it has also created a debt bubble, especially in public sector banks (PSBs). The data shows a sharp rise in credit card defaults, with PSBs being hit the hardest.
So what’s really going on? Let’s break it down.
Are Credit Cards A Convenient Trap?
A credit card is designed to let you buy now and pay later. In financial terms, “credit” means trust. So the bank gives you money upfront and trusts you to pay it back on time.
Your eligibility depends on your income, repayment history, and credit score. Most cards offer a 15 to 45-day interest-free window to repay your dues. But once that period is missed, interest kicks in and it kicks in hard.
What feels like a helpful financial tool can quickly become a debt spiral.
The Data That Raised Red Flags
Recent reports suggest that credit card dues in public sector banks are rising at an alarming rate.
According to CARE Ratings, as of September 2023, the bad loan ratio on credit cards in government banks had reached 12.7%. For comparison, private banks had a much lower bad loan ratio of just 2.1%.
Let’s decode that:
The bad loan ratio shows how much of the total unpaid credit card dues are in default. If a person fails to pay even the minimum due for 90 days, the amount is classified as a Non-Performing Asset (NPA) or a bad loan.
So essentially, more and more people are not repaying their credit card dues, and this problem is far worse in government banks.
What’s Driving This Credit Card Boom?
Several factors have contributed to the growing number of credit card users in India:
E-commerce offers and discounts
Reward points and cashback incentives
EMI options for everything from phones to groceries
Ease of getting a card, especially post-pandemic
In 2011, India had around 2 crore credit card users. As of today, that number has grown to 11 crore. And about one-fourth of those cards have been issued by public sector banks.
According to CRISIL Ratings, online credit card transactions alone have jumped by 60%. Cards are now being used for everything- from utility bills to flight bookings.
The Post-COVID Credit Rush
After the COVID-19 pandemic, there was a strong push to revive the economy through increased consumer spending. Government banks started issuing more credit cards, especially for loan amounts under ₹50,000, to help boost demand.
But here’s the catch:
Many new borrowers, especially from low-income or semi-urban backgrounds were using credit cards for the first time, and often without a clear understanding of how repayment works.
As a result, a significant portion of them defaulted.
Why Government Banks Are Struggling More
While private banks and fintech platforms use advanced analytics, customer profiling, and risk assessments, government banks have been slower in adopting these tools.
To compete, public banks issued credit cards aggressively, but without the same risk controls.
They targeted customers previously outside the formal lending system, offering small-ticket credit quickly and easily. But this strategy backfired, as many of these customers didn’t have the capacity or financial literacy to manage revolving credit responsibly.
Living the ‘Buy Now, Pay Later’ Lifestyle
Another cultural shift is also at play. Young Indians, particularly those in urban and semi-urban areas, are increasingly adopting a “live in the moment” approach to spending. Credit cards, EMI options, and Buy Now Pay Later (BNPL) schemes have made it easy to spend beyond one’s means.
For many, it starts with small purchases – phones, headphones, shopping sprees, but quickly snowballs into larger dues that are hard to repay.
Conclusion- A Wake-Up Call for the System
The credit card default crisis in public sector banks is not just a banking issue, it’s a sign of changing consumer behavior, gaps in financial education, and the need for more responsible lending.
Banks, especially in the public sector, need to upgrade their systems, rethink their risk models, and improve borrower education.
At the same time, users must understand one crucial truth: A credit card is not free money. It’s a loan, and if not used wisely, it can drag you into a debt trap that’s hard to climb out of.
