Soaring credit card dues a new source of concern for RBI

economictimes.indiatimes.com:

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Even after the Reserve Bank of India imposed higher risk weights on unsecured lending by banks in mid-November 2023, credit card outstanding is the fastest growing segment at 34 percent on-year as of end November. The outstanding dues were at Rs 2.4 lakh crore, which is 5 percent of retail loans.

A bulk of it is flowing to the economically less well off with average ticket size of Rs. 40,000 for the subprime segment and about Rs. 60,000 for near prime, an analysis of borrower data upto March 2023 indicated..
«In the case of credit cards, per live borrower credit outstanding is higher for the below prime borrowers suggesting a higher flow of credit to relatively riskier borrowers» economists at the RBI wrote in a research paper titled Dynamics of Credit Growth in Retail Segment: Risk and Stability Concerns.

The RBI paper highlights that the regulator has been encouraging use of technology, account aggregators, strong underwriting and monitoring models to reduce the risk. There are other measures too to contain risk, it said.

"`This can be further extended by prescribing debt-to- income (DTI) limits for certain borrower or product categories,’’ the paper said. "`DTI limits along with restrictions on loan- to-value (LTV) ratios are found to be effective macro prudential tools. Such macro prudential tools can be quickly calibrated in line with the evolving macro-economic situations to support or dampen the credit growth.’’

Retail loans have been propelling Indian banking growth in the past two decades by growing faster than corporate loans. This on the one hand reduces the risk of high bad loans due to granularity, but this could also