New Delhi: In the financial year 2022, falling incomes coupled with low interest rates drove Indian households to buy on credit cards like never before. What were they spending on? Consumer goods like television, laptops, refrigerators, mostly.In the first nine months of FY23, bad or non-performing assets (NPAs) in banks’ credit card segment jumped by Rs 765 crore, or 24.5%, to Rs 3,887 crore, according to a reply by the Reserve Bank of India (RBI) to an RTI query by The Sunday Express.When compared with the total outstanding of banks, the credit card NPA figure appears much smaller. However, the rising NPA trend is becoming a source of worry for the RBI.Potential risksThe central bank has cautioned banks on such loans, the newspaper said. Personal and credit card loans come under the category of unsecured loans. These loans do not require any type of collateral.Additionally, to mitigate any potential risks, the RBI is considering increasing the risk weights on unsecured personal loans, including credit cards, sources told the daily.Risk weight refers to the value that reflects the level of risk associated with a particular asset or exposure held by a bank. It is the amount of capital that the lender has to set aside for every loan offered.The Sunday Express reported that currently, the risk weight for consumer credit, including personal loans, is 100%. For credit card receivables, it is 125%. This higher risk weight already reflects the perceived higher risk associated with credit card loans due to the unsecured nature of credit card debt.According to Businessworld, higher risk weights would restrict banks’ lending capacity in the unsecured personal loan and credit card segments, as it would increase the capital charge.As on April 21, 2023, while consumer durables loans registered a year-on-year growth of 30.8%, credit card outstanding rose by 29.7%, The Sunday Express said, citing RBI data. In FY23, the number of credit cards in the system increased to 8.53 crore from 7.36 crore in FY2022.Also read: The Modi Government Must Answer for India’s Historic Bank Loss of Rs 12 Lakh CroreCredit card outstandingAs of December 30, 2022, the credit card outstanding in the banking system was at Rs 1.8 lakh. The credit card loan exposure in the banking sector was Rs 2 lakh crore as on April 21, 2023 – which is 1.5% of their total loan book.The annual interest in credit cards can go to as high as 36-48% per annum. Unpaid credit card bills can result in late payment fees, increased interest rates, and severe damage to your credit score. It can also lead to collection calls and notices, and legal action.And, during the COVID-19 pandemic, 46% people borrowed money to run their households, showed reports.A credit card account is treated as an NPA if the minimum amount due, as mentioned in the bank statement, is not paid fully within 90 days from the payment due date mentioned in the statement. Credit card loans are not backed by any specific assets for the banks to seize at the time of non-payment.Although the credit card NPA amount is not much, as earlier mentioned, but an increasing trend in non-payment of dues could pose a risk to the Indian banking system. It could affect the banks’ asset quality, increase credit risk exposure, and have a domino effect on other borrowers and lenders.