While the overall asset quality for banks has broadly improved during FY23, impairments in credit card receivables have increased, according to the Reserve Bank of India’s (RBI) Financial Stability Report.
“While there has been an overall improvement in asset quality in respect of personal loans, impairments in the credit card receivables segment have risen marginally,” the report said, with data showing the highest increase for public sector (PSU) banks.
The gross NPA (non-performing assets) ratio of credit card receivables for PSU banks rose to 18 per cent as of March 2023, from around 10 per cent a year ago. In comparison, the gross NPA ratio for private banks was largely stable at 1.9 per cent and for foreign banks at 1.8 per cent against the year-ago period.
The gross NPA ratio for commercial banks stood at 2.0 per cent, also largely unchanged from the previous year.
However, credit card receivables constituted a much smaller part of PSU banks’ personal loans portfolio at 0.1 per cent, compared to the higher share of 10.1 per cent for private banks and 15.3 per cent for foreign banks. Overall, credit card receivables constituted 4.8 per cent of commercial banks’ personal loans portfolio at the end of FY23.
Education loans
As per RBI’s definition, personal loans refer to lending to individuals and comprises consumer credit, education loans, loans for creating/enhancement of immovable assets such as housing, and loans for investment in financial assets such as shares and debentures.
Other categories such as housing loans, vehicle loans and education loans saw an improvement in asset quality ratios for public sector, private and foreign banks alike and on a sectoral basis.
Impairments in education loans, though slightly better than in the year-ago period, remained high at 5.8 per cent, with education loans comprising 2.4 per cent of the personal loans category.
The gross NPA ratio in education loans stood at 6.1 per cent for PSU banks and 3.5 per cent for private banks as of March 2023. Education loans constituted 4 per cent of personal loans portfolio for PSU banks and 0.6 per cent for private banks.
SMA in retail loans
As per the RBI report, bank retail loans witnessed a CAGR of 24.8 per cent from March 2021 to March 2023, almost double the CAGR of 13.8 per cent for gross advances. Retail loans constituted one-third of gross advances, with the share of unsecured retail loans increasing to 25.2 per cent from 22.9 per cent, while that of secured loans declined to 74.8 per cent from 77.1 per cent.
“Although the GNPA ratio of retail loans at the system level was low at 1.4 per cent in March 2023, the share of special mention accounts (SMA) was relatively high at 7.4 per cent for SCBs and it accounted for a tenth of the retail assets portfolio of PSU banks,” it said.
SMA 1 and SMA 2 accounts, which have a higher proximity to default, showed improvement with the total SMA ratio falling to 2.3 per cent in March 2023 from 4.2 per cent in March 2021.
Unsecured retail loans formed 7.9 per cent of the total banking system credit as of March 2023, and their GNPA ratio declined to 2.0 per cent from 3.2 per cent in March 2021. “Thus, notwithstanding few signs of potential stress in retail loans, they do not pose an imminent risk to systemic stability,” the central bank said.