Indians and Their Credit Cards- Revisited
Last year, I wrote an article on the credit card economy in India.
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Given all the chatter about India becoming Americanized(drop in savings rates, more indebtedness, more money flowing into investment instruments — think Mutual funds), I think it’ll be interesting to revisit this topic now, a year later. Let’s see if there are any interesting developments for the better or the worse. To easily compare the changes a year later, I will try and stay as consistent as possible with the sources from the previous article.
Digital Payments Deep Dive: Where and How Do Indians Spend?
The RBI has made its data more granular since my article, and this brings in some interesting insights. For instance, the above graph represents ratios of Online to Offline credit card spending by volume and value. Despite the volume being almost the same, the value of online transactions is higher on average by ~1.5x — 2x as compared to offline spending. But what’s surprising is the fact that this trend is very range-bound across 2 years. From the graph, we could attribute this to the switch to UPI, as the UPI infrastructure has doubled in a year compared to that of credit cards.
Furthermore, if we dive deeper into the breakdown of the data, we can observe an interesting pattern.
The Mystery of Rising Cash Withdrawals
In the above graph, the vertical axis represents INR. There seems to be a gradual decline in both PoS and Online spending since last year. What’s a little concerning is the rising trend of withdrawals using a credit card. As of May 2025, the average amount withdrawn is higher than the amount spent shopping online. So in totality, the average amount ranks like so: ATM>Online>PoS.
Does this mean people are withdrawing using their credit cards to spend and pay for their needs?
If so, why are they doing this despite the fact that the interest on credit card withdrawals far exceeds that even on personal loans?
- Lack of awareness
- Easy access to quick cash
- Paycheck to Paycheck situation
Debt Patterns and Bank Earnings: The SBI Cards Perspective
Let’s look at some SBI card data to help build this chain of thought. Here, in the graph below, I have the revenue streams of SBI cards. According to their investor presentation, they break down their interest earnings into categories — Transactors, Revolvers and EMI. Transactors are credit card users who pay off their balance every month and so incur no interest charges. Revolvers are credit card users who do, occasionally or regularly, pay off only part of their monthly balance and thus incur interest charges.
In the above graph, I haven’t included the Transactor segment, because this segment doesn’t really bring in revenue to the company apart from yearly credit card charges — which might be free with many Lifetime free cards, whereas here we are talking about the receivables of the company, which would mainly consist of outstanding credit and the interest on it. Through the years, the ‘wishful or willful defaulters’ constitute about 60% of the receivables. Even on a year-to-year basis, the receivables from the Revolvers and the EMI segment grew by 14.4% and 16.4% respectively. These EMIs are on the credit card and not any other kind(home, education). Sure, this does indicate the rising debt-fueled consumerism and is also reflected in the increase in Net NPA(Non-Performing Assets).
Generalising SBI Card’s NPA as the industry average and comparing it to the delinquency rate of American credit cards, I’d say we are better off and have better capital controls for now. But in saying this, I won’t be surprised if the NPAs move higher in the future, backed by higher debt-fueled consumption.
Non-Performing Assets: Delinquency on the Rise?
But, before I move forward, let me explain NPA and its stages. In short, NPA can be understood as pending/due credit card payments to the bank. These are categorised by stages, based on how long the payment has been due.
- Stage 1 NPA is delinquency from 0-30 days
- Stage 2 is from 31–90 days
- Stage 3 is beyond 91 days.
If we dig deeper into the different stages of NPAs, we can clearly see the converging gap between stage 2 and stage 3 NPAs. Stage 2 and Stage 3 are converging, which could mean that more and more Stage 2s are being converted into Stage 3s. This, in turn, means that more and more people are unable to or simply not paying their credit card dues, but just paying the minimum amount to keep their credit cards active. What does this cause:
- More accumulated interest for the customer
- Higher interest income for the bank/credit card company
- Higher risk of these credit card loans turning into bad loans(Stage 3 NPA)
- This leads to bad credit scores for such customers, making it harder for them to borrow in the future
Demographics and Credit Appetite: Who’s Using Credit and Where?
The good thing about tracking SBI Card’s as I mentioned earlier and in my previous article, is that they solely deal with credit cards and hence have a lot more information on the credit consumption pattern. Below are some stats from their investor presentation over the years, highlighting information on who’s using and subscribing for their cards and from where they come.
New sourcing, as the name suggests, implies new customers registering for credit cards and Cards in Force implies existing customers. Cat A implies self-employed and Cat B implies salaried.
- What surprised me from these metrics and could support my train of thought on the paycheck-to-paycheck situation is the rise in new salaried customers (~10% growth from FY24). In India, where the economy is being digitalised at a breakneck pace, there’s still a huge portion of the economy that prefers to take their payments in cash. This can be anyone from house help, contractors, and daily wage labourers, for example.
- Another graph that caught my eye was that of the new cards based on City Tiers. This graph could go a long way in explaining the rise in ATM withdrawals. Well, many of us in Tier 1 cities might be more financially aware of the credit card policies, especially on the interest on cash withdrawals on credit cards. To be honest, even in cities, many of us struggle to read the fine print! It’s only worse in Tier 3 cities, where credit is spreading much faster (~15% growth from FY25) than the awareness about credit. As far as I remember, UPI still isn’t at the forefront in Tier 3 cities, but is slowly gaining traction. Businesses here are still run on cash, which might explain the withdrawals for working capital and since these working capital cycles can last as long as 60 or more days, coinciding with the NPAs shifting from Stage 2 to Stage 3.
- On another tangent, loan sharks are still pretty prevalent in Tier 3 cities, and people could be using their newfound access to easy cash to pay back these loan sharks, transferring their indebtedness to the formal system. This may be the start of a new trend of unofficial loans moving into the official system.
Data sources and Notes:
- https://rbi.org.in/scripts/atmview.aspx
- SBI cards investor presentations
- The numbering system on the graph has switched to the European system, probably because I’m using a European version of Excel. Please read the “,” as “.”. For instance, 9,5 = 9.5
