SBI Cards and Payment Services Ltd reported a rise in loan defaults from its credit card customers during the second quarter of the financial year as the Covid-19 pandemic has impacted borrowers’ wallets and tightened consumer spending. The credit card non-banking finance company reported a rise gross non-performing assets (GNPA) to 4.29% in September 2020 compared to 1.4% in June 2020.

“The impact of COVID-19 has led to significant volatility in global and Indian financial markets, which may persist even after restrictions related to the pandemic outbreak are lifted,” the company said in its financial statements.

The quantum of loan defaults or bad loans would have been higher had it not been for the Supreme Court’s interim order on September 3, 2020 in Gajendra Sharma Vs Union of India. The apex court said that lenders should not downgrade accounts to the NPA category after August 31, 2020. If the Supreme Court did not intervene, SBI Cards says that the GNPA ratio for the July to September 2020 quarter would have been at 7.46%.

During an earnings call with analysts, Ashwini Kumar Tewari, managing director and chief executive officer at SBI Cards, said that most of the company’s stress is concentrated in the accounts that had availed moratorium between March and August. “These are accounts which belong to the self-employed borrowers, added through our open market customer acquisition. The customers added from our arrangement with SBI have actually performed better than the rest of the book,” he said.

Covid-19 Impact

Though there have been some improvements in economic activities in the current quarter, the continued economic slowdown has impacted new credit card originations, use of credit cards by customers and the efficiency in collection efforts, the company said.

At the end of September 2020, SBI Cards had around 11 million cards-in-force of which 688,000 were sourced since July compared to 912,000 during the same period in the previous year, according to its investor presentation. Between April and June this year, new account opening fell to 288,000 in wake of the Covid-19 pandemic.

Overall, the total credit card spending stood at ₹ 29,590 crore for the second quarter of this fiscal, while the average spend per card has reduced to ₹1.1 lakh in the second quarter of this fiscal compared to ₹ 1.45 lakh in the same period last year. In September, the company’s new account sourcing stood at 98% of its pre-Covid levels, while retail spending stood at around 92%. Around 55% of the spending takes place online with health, utilities and education services accounting for the majority of card spends while travel, hospitality and entertainment saw a significant decline in card spends.

The company restructured around ₹2,108 crore worth of credit card loans, under the Reserve Bank of India’s August 6, 2020 one-time restructuring framework for Covid-19 related stress, to equated monthly installments. These restructured loans account for 9% of SBI Cards total receivables which stood at ₹23,978 at the end of September 2020 compared to ₹23,038 crore in the previous year.

Customer strategy

While SBI Cards is the second largest card issuer in the country, after HDFC Bank, it’s biggest strength lies in its ability to leverage SBI’s branch network network to source new customers. It now commands a 41.3% market share in new to credit card customers and a 37.1% market share in card issuances to customers in Tier-3 and beyond cities and towns. Around 28% of its new accounts are new to credit card customers and 57.2% reside in Tier-3 and beyond cities and towns.

With its recent partnership with Google Pay, which will allow credit cardholders to use a tokenized version of their cards to pay online or physically at merchant outlets using the Google Pay app on their smartphones, the company hopes this partnership will go a long way to increase acceptability of SBI Cards as a payment mode, Tewari said during the earnings call.

Further, SBI Cards has partnered with several in-store and online retailers like Amazon, Flipkart, Croma, Samsing Mobile and others to offer customers discounts and cashbacks during the on-going festival season.

“We see a large proportion of these sales, around 25-30% of the volume, gets converted to an EMI option which also provides us with interest income. Almost 50% of these sales come from Tier-2 and beyond and these offers help us activate customers in these areas. Almost 100,000 customers that were inactive for the last six months suddenly started using their cards during the sale. There are multi-fold benefits of such offers such as it helps build assets, improves customer engagement and also reduces attrition,” Girish Budhiraja, chief product and marketing officer, SBI Cards said during the earnings call.

 

Financial snapshot

  • Total loans stood at ₹ 21,925 crore (down by 2% YoY)
  • Total income stood at ₹ 2,513 crore (up by 6% YoY)
  • Interest income stood at ₹ 1,1275 crore (up by 10% YoY)
  • Total expenses stood at ₹ 2,235 crore (up by 19% YoY)
  • Total provisions stood at ₹ 1,188 crore, of which ₹ 268 crore worth of a management overlay provisions were made during the quarter towards the impact of Covid-19 impact
  • Impairment losses and bad debts stood at ₹ 862 crore (up by 162% YoY)
  • Net profit stood at ₹ 206 crore (down by 46% YoY)

Downloads: Investor Presentation | Financial Results