SBI Cards growth nears pre-Covid level on higher spends, new card sourcing

Asset quality needs monitoring as Q3's gross NPA ratio of 4.5 per cent is higher than average

The SBI Cards and Payments Services (SBI Cards) stock has gained about five per cent since its December quarter (Q3) results. This is despite the lender’s operating profit falling by three per cent year-on-year (YoY) and net profit by about 50 per cent YoY. What’s more, at Rs 648 crore, provisioning cost rose by 72 per cent YoY, marking the fourth straight quarter of elevated provisioning costs.

Yet, what worked is the eight per cent YoY growth in overall credit card spends to Rs 37,800 crore and a strong rebound in new cards sourcing — up 34 per cent sequentially in Q3. With the past two quarters having lagged on these aspects, the Street is taking SBI Cards’ Q3 performance positively. At 340,000, new cards sourced in December is the highest so far, thanks to its partnership with Paytm and Bharat Petroleum Corporation and also HDFC Bank’s loss turning out to be SBI Cards’ gain.

With a curb on new cards procurement imposed by the banking regulator in early December, HDFC Bank may have missed capturing the Christmas and New Year sales. SBI Cards has also steadily increased market share from 17.8 per cent in March to 20.1 per cent in November and the December numbers will reiterate that its gains were at the expense of HDFC Bank.

Continued harvesting of its bancassurance tie-up with State Bank of India, accounting for 50 per cent of incoming customers, augurs well. Faster growth in new-to-credit customers, share of which has increased to 26 per cent in Q3 from 18.7 per cent a year-ago, and new-to-cards proportion reducing to 23.8 per cent from 26.5 per cent works well from a credit quality perspective.

In Q3, though, there wasn’t much relief on this aspect. Proforma gross non-performing assets (NPA) ratio or NPA ratio unadjusted for the Supreme Court’s stay on bad loan recognition, at 4.5 per cent was higher by 200 basis points (bps) YoY. While on a sequential basis, it fares better than Q2’s 7.5 per cent, the number is still higher than the three-year gross NPA average at less than 2.8 per cent. Roughly 2.5 per cent of total loans were written off in Q3 and nine per cent (similar to Q2) restructured.

On the whole, given a faster rebound in business, Q3’s asset quality, as Shweta Daptardar of Prabhudas Lilladher puts it, is not much of a concern. However, if provisioning cost remains elevated, consuming a chunk of operational income, that may neutralise growth momentum. For now, FY22 credit cost is estimated at 8.5-9 per cent, almost twice the pre-FY20 average. Any miss on this front could derail the momentum in SBI Cards’ stock price.