SBI Cards likely to gain as higher spending expected in third quarter

The Reserve Bank of India (RBI) credit card data for August 2023 indicates healthy growth for credit card usage. Card spending rose by 3 per cent month-on-month (M-o-M) in August, and year-on-year (Y-o-Y) growth was 32 per cent (versus 5 per cent M-o-M and 25 per cent Y-o-Y for July ’23).
 

Taking 2023-24 financial year (FY24) year-to-date (April-August 2023), growth in spending was 27 per cent Y-o-Y. In September ’23 (till September 25) spending has been relatively subdued so far, with a drop of 5 per cent M-o-M and 19 per cent growth Y-o-Y over September ’22. Physical spending at point of sales increased 7 per cent M-o-M in August ’23 (18 per cent Y-o-Y growth) while e-commerce spending showed 42 per cent Y-o-Y growth.

Online and e-commerce spending was 64 per cent of total spending for cards. There was a net addition of 1.4 million cards in August ’23, increasing the base by 17 per cent Y-o-Y and 2 per cent M-o-M in August ’23. About 91.3 million cards are outstanding.

The four largest players are HDFC Bank, SBI Cards, ICICI Bank, and Axis Bank and they hold 70 per cent of outstanding cards and receive about 75 per cent of spends. Average spend/card is around Rs 1.95 lakh and average ticket size is Rs 5,520 per transaction. There’s been consolidation with the top four gaining aggregate market share of 130 basis points (bps) in spends.  
 

Overall, credit cards contribute around 15 per cent of unsecured personal loans. Receivables (loans on balance sheet), which comprise unpaid dues from transactions as well as revolving balances and conversion of spends to instalment loans, grew 36 per cent Y-o-Y to Rs 2.1 trillion in the first quarter (Q1) of FY24. Loans as a percentage of spending fell from 21 per cent in FY21 to 13.5 per cent in FY23, and 12.7 per cent in Q1FY24. Revolver accounts in the receivables mix are low compared to pre-Covid levels. The focus is on equated monthly instalments.
 

SBI Cards gained the most market share in August ’23 (51 bps M-o-M) in terms of spending, while HDFC Bank lost market share by 73 bps M-o-M. In comparison to FY23, ICICI Bank and SBI Cards lost market share in spends by 55 bps and 25bps (FY24YTD), while Kotak Mahindra Bank gained market share by 50 bps.

ICICI Bank garnered 22 per cent of incremental market share in cards in August ’23, leading to 8 bps increase in market share in outstanding cards. On the other hand, HDFC Bank lost market share by 33 bps M-o-M in August 2023 in the cards base. On a

12-month basis, HDFC has lost around 167 bps in market share of outstanding cards, while SBI cards has gained 137 bps. ICICI has lost a marginal 9 bps while Axis has gained a significant 563 bps.

Credit card providers are looking to raise market share by introducing new cards and co-branded cards. Many players are also experimenting with UPI (unified payments interface) on credit card, with some enabled products rolled out.
 

It’s clear that Q2FY24 was strong for this segment and this is expected to continue. In the key festival season, card spending/month was 3-8 per cent higher than the monthly average for the whole FY23. If that pattern holds, we may see a very strong Q3FY24 coming in. SBI Cards as the only listed pure-card player should be in focus but the stock has lost 12 per cent in the last year.