Despite slowdown, consumers on time with credit card repayments

The slowing economy may be pinching the pocket, but that’s not delaying credit card payments, say banks. There has been no spike in delinquency levels till now, according to banks.

“People are managing things a little better this time. This is the big difference between 2008 and now. People are not just spending because credit is available. We are not seeing any trend to say there is a stress,” said Harjeet Toor, Head -Retail, Inclusion and Rural Business, RBL Bank.

“Consumer demand in the festival season was a bit higher than last year. There is no spike in delinquency rates for credit card repayments, in fact it has gone down to some extent,” said another banker, who did not wish to be named, when asked about repayments by consumers for credit cards.

According to a recent report by TransUnion Cibil, as many as 2.77 crore customers held a credit card at the end of the second quarter this fiscal, with an outstanding balances of close to ₹1-lakh crore.

“…credit card delinquencies improved by 27 basis points year-on-year to 1.62 per cent in the second quarter of 2019. Balance-level delinquencies have ranged between 1.85 per cent and 1.9 per cent in the last five quarters,” the report said, adding that credit card vintage analysis also confirmed this improvement in delinquency across all risk tiers.

With economic growth slowing to a 26-quarter low of 4.5 per cent in the second quarter of the fiscal, concerns are emerging about its impact on consumer spending and demand.

“...growth in retail lending remains buoyant at near 15 per cent despite weakness in vehicle finance; retail buoyancy is being led by home loans growing at 19 per cent as well as personal loans and credit card outstandings,” according to a report by ICICI Securities on ‘Banking 2020 Outlook’.

Wait-and-watch mode

While most banks are monitoring the situation and say there is no concern as of now, some have begun to tighten norms for credit card approvals.

“As of now, the credit card business continues. But some banks are becoming a bit risk averse and cutting down any segment of borrowers that could become a risk in future,” said another source familiar with the development.

“Interestingly, credit card lending shows healthy collection efficiency, which could be attributed to changing consumer behaviour and growing dependency on digitisation. Though the NPA trends seem stable in the near term, we bear risks of a weakening economy in mind, which may affect collections, if incomes do not grow in line with household debt levels,” said a report by Emkay Global Financial Services.

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