India's record high credit card spending indicates a potential risk
The amount transacted through cards rose to an all-time high of 1.48 trillion rupees ($17.8 billion) in August, up from July’s 1.45 trillion rupees, according to the latest data by the Reserve Bank of India. The spending binge is in line with rising indebtedness and falling savings among Indians and may point to growing stress as incomes stagnate.
The card spends “indicates people are borrowing to spend,” said Rupa Rege Nitsure, Group Chief Economist of L&T Finance.
“As loans on credit cards are unsecured, there is a risk of high defaults,” particularly if economic growth slows later in the year.
The rising spends also points to an aggressive retail push by lenders in the under-banked market with a 1.4 billion population. Post pandemic, banks have expanded their balance sheet mainly by funding individuals, while credit demand from businesses has somewhat lagged.
Record-low rates offered to meet pent-up demand has seen banks’ retail loan portfolio double between 2019 and now, raising concerns among policymakers.
