Behind India’s Credit Card Spending Surge: Young Borrowers, Rising Defaults

In February this year, Arun (name changed on request), a 37-year-old techie in Bengaluru with two children, finally became debt-free—ironically, after being laid off.

“I got fired in February, but luckily, there was severance and I found a new job by March. That severance helped clear everything,” he told The Core. But getting there wasn’t simple.

It took him six years, multiple loans, and over Rs 2 lakh in interest on a credit card principal of just Rs 1.5 lakh, which he had slowly accumulated through missed repayments, minimum due cycles, and EMI purchases.

At its peak, Arun had Rs 1.5 lakh in credit card debt, and another Rs 3.4 lakh in personal and EMI loans. His monthly outgo toward debt repayments crossed 60% of his income.

“Now that has changed a lot,” he said. He is one of the lucky ones.

A close friend of his, also in his mid-30s and living in Pune with a family, is currently juggling Rs 5 lakh in credit card dues and non-mortgage loans exceeding Rs 35 lakh. His monthly EMI? Over Rs 2 lakh—the same as his monthly income.

Their stories are far from rare.

After a strong end to 2024, credit card spending in India fell sharply in February 2025. According to the Reserve Bank of India (RBI), total credit card spending stood at Rs 1.67 lakh crore in February 2025, down from Rs 1.84 lakh crore in January 2025. Transaction volumes also dropped to 39.6 crore in February, compared to 43 crore the previous month.

However, spending remained higher on a year-on-year basis, up from Rs 1.49 lakh crore in February 2024, suggesting continued momentum in overall credit usage.

Still, the sequential decline is notable.

“There is always a seasonal adjustment that happens after the year-end and new year spending. A lot of consumers, especially in urban segments, frontload discretionary spending between September and January,” Arvind Datta, founder of Marigold Wealth and a former banker in credit risk, told The Core.

Even so, the depth of the pullback — nearly Rs 17,000 crore in value and over 3 crore fewer transactions — points to a more cautious consumer base in early 2025.

Non-performing assets (NPAs) — or the amount defaulted by customers — in the credit card segment rose by 28.42% over the last year, reaching Rs 6,742 crore during the 12-month period ending December 2024, according to the latest data from the RBI. That’s an increase of nearly Rs 1,500 crore from Rs 5,250 crore in December 2023, and the highest level recorded in absolute terms in India’s credit card market.

For comparison, gross NPAs stood at:

• Rs 2,404 crore in March 2020, just before the onset of the pandemic

• Around Rs 1,100 crore in December 2019

• Over Rs 5,000 crore in write-offs during the 2008 financial crisis, which had prompted banks to slash their card portfolios and tighten underwriting

Despite the sharp rise in value terms, the NPA ratio remains within the expected range, at around 2.3% of total outstanding dues, which touched Rs 2.9 lakh crore as of December 2024. For card issuers, this is still manageable — many operate profitably with net credit losses in the 4–6% range due to high revolving interest rates and fee income.

However, headline ratios can obscure the true picture of borrower-level vulnerabilities. As reported by The Core in 2023, rising defaults in categories such as buy-now-pay-later (BNPL), instant credit, payday loans and digital EMI cards had already begun surfacing, prompting the Reserve Bank of India to step in. In November that year, the RBI increased risk weights by 25 percentage points on unsecured lending, including credit card receivables and bank exposures to non-banking financial companies (NBFCs).

A closer look shows that the economic risk isn’t just in rising defaults, but in who is borrowing, how easily that credit is accessed, and what happens when repayment capacity slips. New-to-credit (NTC) consumers are often juggling multiple forms of unsecured debt — from credit cards to BNPL to personal loans — without fully understanding the compounding consequences. While credit card debt may appear under control on paper, the underlying stress is quietly building across borrower segments, bank portfolios, and fintech channels alike.

Public Sector Banks Take the Biggest Hit

While overall credit card NPAs have surged across the banking sector, public sector banks (PSBs) have been disproportionately affected. According to data collated by Care Ratings, as of September 2024, PSBs recorded a staggering 12.7% bad loan ratio in their credit card portfolios, markedly higher than the 2.1% reported by private sector banks.

According to a report in The Economic Times, the deviation in delinquency rates between public and private sector lenders is traced back to the post-Covid revenge consumption spending. After the lockdowns, fintechs that predicted this trend flooded the market with credit card-like offerings, including BNPL schemes and checkout financing tools for e-commerce purchases.

To stay competitive, many state-owned banks aggressively onboarded new credit card customers, not just in metros but in tier II and tier III cities, to ride the consumption boom. In contrast, large private banks took a more conservative approach, largely limiting card issuance to their existing customer base with verified credit profiles, The Economic Times added.

SBI Cards, India's second-largest credit card issuer and a subsidiary of the State Bank of India, reported a gross non-performing asset (NPA) ratio that escalated to 3.27% in the quarter ending September 2024, up from 2.43% a year earlier. This rise in NPAs led to a 33% decline in net profit for the quarter, as the company increased its provisions for bad loans by 63%.​

In response to the mounting delinquencies, SBI Cards also implemented stricter underwriting standards and enhanced its collection mechanisms. These measures yielded some improvement, with the gross NPA ratio slightly reducing to 3.24% by the end of December 2024. However, the elevated levels of NPAs continue to pose challenges for the company.​

A parallel wave of credit expansion was being driven by fintechs and digital lenders. Industry insiders The Core spoke with pointed out that BNPL schemes and digital EMI products blurred the line between short-term liquidity and long-term debt. Many of these offerings were marketed as lifestyle upgrades, but often without fully explaining the risks.

Specifically, after the RBI cracked down on fintechs using prepaid payment instruments (PPIs) to offer credit, including BNPL models, many of them pivoted to newer models. Several startups pivoted to a model built on RuPay credit cards linked to the Unified Payments Interface (UPI)—a framework officially permitted by the RBI in June 2022. This allowed customers to use credit cards for UPI payments, including QR-code-based small-ticket purchases, bringing credit into a traditionally debit-first space.

Fintechs like Kiwi, PhonePe, Rio, Super.money, Kredit.Pe, and Jupiter quickly jumped on this model, positioning it as a compliant, scalable alternative to wallet-based lending. The adoption took off fast. Kiwi co-founder and CEO Mohit Bedi told Moneycontrol in February 2025 that the platform was already facilitating Rs 300 crore in monthly transactions. By October 2024, UPI-based payments using RuPay credit cards had reached 75 crore transactions, totalling Rs 63,825 crore, as per NPCI data.

This coincided with a sharp rise in formal credit card issuance. According to data from the RBI, the number of credit cards in circulation touched an all-time high of over 10.5 crore by December 2024, up from around 8.1 crore in January 2022—a 30% increase in just under three years. Much of this growth was fuelled by new-age lenders, co-branded cards issued with fintechs, and a push to reach previously untapped segments, including NTC consumers in Tier II and III cities. While the numbers reflect financial inclusion on paper, the debt that followed has proven harder to manage for many borrowers.

Young, First-Time Borrowers Are Slipping Behind

Kundan Shahi of Zavo, a platform helping consumers settle unsecured debt, told The Core that roughly 13% of their users are only paying the minimum balance on their credit cards, leading to a debt trap cycle.

“These numbers are an alarm bell. Most users don’t realise that minimum due is not relief — it’s a trap. They end up paying 53% interest annually on rolling balances. When it comes to Rupay-UPI linked cards, we’re seeing credit card spending shift to chai, groceries, and even Rs 10-Rs 20 items — things you'd never swipe a physical credit card for. You can’t control behaviour when the interface is that frictionless. UPI has made debt invisible,” added Shahi.

Much of Zavo’s user base, who utilised their debt settlement assistance, comprises young, digital-first borrowers, with 43.4% aged between 25 and 34, and 27.8% in the 18 to 24 age group. These users are primarily based in major metros such as Delhi, Bengaluru, and Mumbai, with a sizeable portion coming from prominent tier II cities including Agra, Sonipat, Ahmedabad, Allahabad, and Patna. Over 75% are salaried individuals earning between Rs 3 lakh and Rs 5 lakh per annum, placing them in the low-to-middle income bracket with modest repayment capacity.

“After Covid, a lot of people came into the formal credit system for the first time. Many of them didn’t have any experience managing revolving credit… some lenders went too aggressive. You had BNPL and fintech cards onboarding people who were barely credit-ready,” Anurag Jain, founder and executive director of supply chain financing firm KredX, told The Core.

Further validating these trends, Shahi of Zavo, lenders, especially during the 2021–2023 period of rapid expansion, were often focused on customer acquisition rather than creditworthiness, targeting consumers with limited or no credit history.

Among Zavo’s users, 20% are new-to-credit (NTC), while the remaining include those with varying risk profiles. Shahi noted that only 30–35% of users are prime or super-prime, indicating that the vast majority are either subprime or relatively young, thin-file borrowers with weak credit behaviour.

Zavo has seen over three lakh customer sign-ups to date. Of these, 1.66 lakh users were burdened with credit card debt, while 3.56 lakh users had accumulated other forms of unsecured loans, ranging from BNPL credit to short-term personal loans. Notably, 1.66 lakh users were juggling both, indicating a multi-layered debt problem among financially stretched consumers, according to data shared by Zavo with The Core.

The company has so far helped resolve and close debt cases for 69,448 users. On average, users carrying credit card balances owed Rs 4.16 lakh, while those holding a combination of credit card and loan debt had total liabilities averaging Rs 6.14 lakh per person. Many of these users had slipped into distress by paying only the minimum due month after month, accumulating interest without reducing principal.

A growing share also turned to Zavo due to harassment by recovery agencies. “As a first step, we ensure all harassment calls and unethical recovery practices from lenders are immediately addressed and paused,” the company said. After initial documentation, each user is assigned a dedicated case manager and legal expert.

Credit Revolvers Are Profitable—And Vulnerable

What makes the current trend more complex is that the most financially vulnerable customers, those who pay only the minimum due or revolve their balances, are also the most profitable for card issuers. Banks and NBFCs earn not only from late fees but also from the compounded interest charged on unpaid balances, often ranging between 36% to 48% annually. Unlike transactors who pay their dues in full and on time, revolvers carry forward their debt and become long-term revenue generators for lenders.

“They’re essentially taking small loans every month and paying a heavy premium for it, but they don’t realise how fast that interest compounds,” Jain of KredX added.

He also explained that during the post-Covid boom, as NTC users flooded the system, many issuers actively encouraged spend-based rewards and flexible repayment options, without adequately explaining (to users) how rolling balances accumulate interest.

This explains why many lenders in unsecured credit, leaned heavily on customer acquisition strategies that encouraged usage over repayment discipline, a trade-off that now appears to be catching up with the system.

RBI Taps The Brakes On Unsecured Lending

Even though the RBI facilitated credit expansion via UPI through RuPay credit cards, which became the fintech favourite, the regulator has made it increasingly clear that innovation must be coupled with accountability. In the last four years, the central bank has intervened repeatedly to steer the sector toward more responsible practices. It first issued the Digital Lending Guidelines in 2022, which sought to eliminate pass-through loan structures, enforce direct disbursals to borrower accounts, and standardise customer disclosures.

Then, in 2023, RBI capped the First Loss Default Guarantee framework, offered by fintech guarantees at 5% of loan portfolios to ensure that lenders retain real exposure. And when growth in unsecured retail loans—particularly personal loans and credit card dues—began outpacing overall credit growth by a wide margin, the RBI raised capital requirements across the board.

These measures are already slowing down fresh originations and have forced lenders to tighten underwriting filters, especially for NTC customers being acquired via fintech tie-ups. In its latest Financial Stability Report, the RBI noted that the growth of consumer credit has moderated since these risk weight changes came into effect. The regulator has also reportedly flagged concerns to certain banks over the rising share of NTC borrowers and has emphasised the need for stronger due diligence when onboarding credit users through third-party platforms.

But industry experts believe this may only be the start. And while NPAs are still within manageable thresholds, the signs of repayment fatigue are becoming harder to ignore.