India's credit card market has seen explosive growth in recent years, with banks and fintechs issuing millions of new cards. But this boom is showing signs of strain as defaults rise, especially among sub-prime borrowers. The Reserve Bank of India has flagged concerns, and analysts warn that the rapid expansion may be outpacing prudent risk management.
Credit card outstanding in India surpassed ₹2 lakh crore in 2024, nearly doubling in five years. However, the delinquency rate on credit cards has also crept up, with cards overdue for more than 90 days rising to about 2.5% of total outstandings. Sub-prime borrowers—those with lower credit scores—are disproportionately responsible for these defaults.
Banks have aggressively targeted this segment, drawn by high interest rates and fee income. But when borrowers struggle, banks face mounting losses. The challenge is to balance growth with credit quality. Some institutions have tightened underwriting, but others continue to push cards to new customers.
Customers are the most directly affected. Late payments attract hefty penalties and damage credit scores, making it harder to access loans in the future. For the broader economy, rising defaults could lead to tighter lending norms, slowing consumption.
The RBI has urged banks to strengthen collection practices and avoid reckless lending. Regulators are also exploring a credit card framework that could limit exposure to high-risk customers. Industry experts say the boom is not about to burst, but the pace of growth may slow.
What happens next depends on how banks manage risk. If defaults keep climbing, the central bank may step in with stricter rules. For now, the credit card industry's fortunes are tied to the strength of the economy and the decisions of millions of cardholders.