Dealing with defaulters remains a challenge for SBI Card

SBI Cards and Payments hopes to maintain new card customer addition at 1 million per quarter, consistent with Q4FY24.
SBI Cards and Payments hopes to maintain new card customer addition at 1 million per quarter, consistent with Q4FY24.


  • While SBI Card continues to see robust growth in credit card spending, profit growth remains modest due to high default rates. The company must address this issue to boost investor confidence and sustain its financial performance

SBI Cards and Payments Services Ltd's healthy 25% growth in overall credit card spending in FY24 failed to translate into even a 10% profit increase, disappointing investors. Despite the subdued profit growth, the stock still commands a price-to-earnings multiple of 29x based on FY24, reflecting optimism about the future. However, the trend in Q4FY24 mirrors the preceding three quarters, with no signs of material improvement in the near future.

SBI Card’s net profit rose by 11% year-on-year in Q4 with a whopping 60% jump in written-off dues weighing heavily on profitability. The 25% growth in advances, i.e. credit card outstanding amount, compensated for the 60 basis points (bps) shrinkage in the net interest margin (NIM).

Also Read: Why RBI is wary of co-branded credit cards

Fee income grew by 12% year-on-year to 2,000 crore, in line with almost the same growth rate in spending by cards, which was mainly driven by increase in cardholder base to 18.9 million. Notably, blended spending per card, which includes corporate and retail, saw a slight decrease. Although the company earns fee income through interchange fees or merchant discount rate fees, it also pays out a portion of fees earned on corporate card spending as rebates. So, while fees earned grew, less corporate spending meant the fees paid fell 36%. This twin benefit on the fees front was the critical factor that saved the day for SBI Card.

True, the company is prone to seasonality such as peaking of festival spends in Q3, but still there are some clues from quarter-on-quarter trends that help in understanding the movement in key variables from a near-term perspective. For instance, while there is some respite in the form of decline in cost of funds by 20 bps sequentially, the impairment or provision is likely to remain elevated going forward, too, with stage 3 outstanding dues, or non-performing assets (NPAs), having risen 12% sequentially to 1,424 crore.

SBI Card plans to convert outstanding dues to EMI of 12 months or more for certain customers. However, while NPA accretion remains high, the declining recovery rate from defaulters is a bigger disappointment. For instance, the company’s recoveries stood at 491 crore in FY24, lower 16% year-on-year. This indicates that credit card defaulters may not have faced temporary cash flow problems, but it could be either a permanent loss of income or unwillingness to pay up. In such a scenario, there are serious doubts whether allowing the EMI option can alleviate the problem.

In terms of growth, the company hopes to maintain new card customer addition at 1 million per quarter, consistent with Q4FY24. Though the numbers for Reliance-SBI Card, launched in November, are not available separately, it should boost growth, leveraging Reliance's wide customer base across telecom and retail. Moreover, the company along with the industry should also benefit from credit card spending using Rupay credit card as unified payment interface (UPI) has been gaining popularity to make payments on UPI enabled apps.

Nevertheless, SBI Card has not struggled with retail credit card spending growth. But unless it addresses high customer default rates to spur profit growth, investors are likely to adopt a wait and watch approach.

Also Read: Does SBI’s new credit card go the extra mile for travellers?


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