Plastic pitch: Issuers of credit cards must reshape them for their basic purpose

Subscribe to enjoy similar stories. A yawning gap has been reported between bad loans on credit cards issued by public-sector and private banks. Given the difficulty with which the dud-loan burden of lenders in India—particularly state-run ones—was brought under control in recent years, this must not escape notice.

After a painful and prolonged clean-up, banks must not repeat past mistakes. Unfortunately, a pile-up of credit left in the lurch on the plastic cards of public sector banks (PSBs) suggests otherwise. In a rush to capture bigger chunks of the ‘revenge buying’ witnessed in the aftermath of the covid pandemic, PSBs might have been less than discriminate in issuing cards, with the result that their bad-loan ratio on these stood at 12.7% at the end of September, much higher than the 2.1% reported for private banks.

This data from Care Ratings underscores broader concerns over personal debt. Liberal sign-ups seem to have made credit card holders splurge on various goods and services. But many of them may have been unaware of how costly this credit can prove if rolled over beyond the no-interest payback period (of a month, typically).

Penalties for failing to meet minimum repayment obligations are severe, while the interest charges are usurious, often several times the rate charged on other collateral-free loans given by banks to their clients. Notably, the success of India’s Unified Payments Interface (UPI) has not got in the way of a surge in credit-card usage. By the end of 2024, the number of active cards in India had climbed to 108 million, almost double the 55.3 million five years earlier, according to data from the Reserve Bank of India (RBI).