SBI Cards and Payment Services Limited (SBICARD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SBI Cards and Payment Services Limited Q2 FY'22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rama Mohan Amara, Managing Director and Chief Executive Officer of SBI Card. Thank you, and over to you, sir.

Yes. Thank you, Faizan. Good evening, everyone. I extend a very warm welcome to all of you. Thank you for your presence today at the SBI Card and Payment Services Limited earnings call for Q2 FY'22. We truly appreciate your continued patronage and trust. I hope you and you were loved ones are safe and healthy. It is heartening to see the pace of country-wide vaccination. India recently achieved a massive feat of administering 1 billion vaccines. As a result, majority of the population is now covered with at least one dose. With increased revaccination and continuing COVID-related percussions normalcy is gradually returning across businesses, and then it is also boosting consumer sentiment. A recent report by IMF has indicated that India will be the fastest growing major economy in the world, with its GDP growth expected to be at 9.5% in 2021 and 8.5% in 2022. This is in line with the RBI's target of -- target for growth projection for FY'21, '22 at 9.5%. Composite BMI for India sustained at over 55 level in August and September 2021. As per report, both manufacturing and services sectors have shown steady recovery. While most parameters are positive, global supply chain continues to be strained and is likely to take some more time to normalize. Consumer sentiment, too, is up and is likely to spur consumer spending. As we have seen in the past, digitization of payments is increasing and is growing further. Consumer spending is moving towards the discretionary products and a gradual in revival travel is also visible. Continuing with progress to approach regulators in recent months, have introduced many initiatives to further make the digital payments safe for everyone. For instance, permitting card-on-file tokenization to enhance security and convenience, which is going to be effective from 1st of January '22. Now I will present a business overview under new initiatives. As an agile organization, we have taken all measures to pursue sustainable business growth during the quarter. The results are visible across our business. For instance, our new accounts witnessed a very strong growth during the quarter at well over 9.5 lakh new cards. In fact, addition of new accounts has been about 56% jump as compared to previous quarter. New accounts sourcing through ASP channel has nearly doubled compared to the previous quarter with over 4 lakh new accounts added during Q2 FY'22. Our cards in force are now well over a 12.5 million. As a result, we have been able to increase our market share in cards in force, maintaining our position as the second largest card issuer. Positive business momentum can also be gauged from growth weakness in spends. At well over INR 43,000 crores during the quarter, SBI Card witnessed the highest spends during the quarter. There has been a sharp increase in both retail and all corporate spends, with both witnessing a 41% and 80% year-on-year growth, respectively. Noticeably, online spend continued to grow steadily across most categories. Importantly, and as expected, with gradual normalization of the situation on the ground, fast spend across most categories, such as departmental stores, health, utilities, education, consumer durables, furnishing and hardware, have surpassed the pre-COVID that is December '19 to February '20 level, with apparel and jewelry registering the highest growth. Travel and entertainment-related transactions too have finally witnessed impressive growth, so they are still to reach pre-COVID level. During the period, we rolled out varied initiatives to keep our customers informed, inspired and engaged, for instance, our campaign Khushiyon ka Credit Card. In line with an increase the preference, we continued offering customers with easy payments, such as EMI at low interest rate levels, which has been received well. We initiated just to further improve, strengthen and diversify our portfolio. BPCL SBI card got introduced on the RuPay networks during the period. We are noticing continuous steady improvement in delinquencies. We have also successfully switched to new mechanism for recurring payments as per the deadline mandated RBI. Not only on business, but we have also maintained a strong focus on our commitment to create value through ESG. We have funded second waste management facility to recycle plastic waste at [indiscernible], Greater Noida. We continued our investments towards skill development, healthcare, dry ration support, et cetera, to under privileged. Significant strides towards diversity and inclusion with the launch of women alumni hiring program, inclusive hiring for people with disabilities. I would like to express my special gratitude to all my colleagues at SBI Cards, who rose to the challenges and diligently followed their professional responsibilities that have helped us to reach so far successfully. Let me now take you through our financial performance for Q2 FY'22. Our business model is inherently strong with robust fundamentals and based on strong business performance in the quarter, the company has delivered profit after tax of INR 345 crores at 67% year-on-year growth. Driven by growth in spend, receivables have grown by 12% year-on-year to close at INR 26,700 crores, further leading to a total income at INR 2,695 crores at 7% year-on-year. Our operating expenditure was higher by 23% year-on-year, driven by higher business volumes. On asset quality, our GNPA has come down to 3.36% as compared to 3.91% at Q1 FY'22. Net NPA for the period is at 0.91%. The overall management overlay to cover our bills for future credit risk stands at INR 231 crores as on September '21. Despite addition of INR 105 crores towards RBI RE 2.0, the overall book has declined from INR 1,376 crores in Q1 to INR 1,030 crores in Q2. The shape of RBI RE book stands at 4% of total receivables as it was 6% in Q1. For the RBI RE book, which is between 30 days to 90 days, the company continues to provide a Phase 3 ECL rate of 6.99%. Further for the RBI RE book greater than 90 days, the company provides at 100%. Return on average assets for the quarter ended September '21 is at 4.9%, which is higher by 155 basis points as compared to 3.4% for Q1 FY'22. And ROAE is at 20.1%, which is higher by 594 basis points as compared to 14.1% for Q1 FY'22. On liquidity and capital adequacy, our liquidity position continues to be strong during Q2. Our capital adequacy ratio for the period ended September is at 25% as compared to 25.3% in Q1 -- Q2 FY'21. In Q2 FY'22, our Tier 1 ratio has improved to 21.8% from 21% at Q2 FY'21. Our liquidity coverage ratio for the period ended September '21 is at 74% as against the statutory requirement of 50%. Our credit ratings remain excellent with the A1+ and AAA rating by CRISIL and ICRA for both short-term and long-term borrowings. These strong credit ratings by the rating agencies reflect our robust financials. While the future impact of COVID-19 on the company's results remain uncertain, I would like to reiterate that as of now, most of the business activities are back at pre-COVID levels, including sourcing of new accounts and spend some credit cards. During the COVID period, the company has exercised prudent to preserve economic value of the business. While we remain watchful of macro environment, we will continue to pursue all opportunities for sustainable business growth. With that, let's open the call for questions, Faizan. You may open the call for questions.

[Operator Instructions] The first question is from the line of Anuj Singla from Bank of America.

Yes. Sir, my first question is with regards to the disconnect between spends market share and card in force market share. So the presentation shows we have gained 30 basis points cards in force, transaction market share is also up 30 basis points, but we've lost around 30 basis points on the spends market share. It seems to be indicating that spends for card for us is trailing the industry. Can you give some color on is this related to corporate spend? Because what -- the data we get is for the total spend? Is that where we are losing some market share? Or is the retail side as well? And the corollary to that question is, what -- are we doing something to address this?

Yes, Anuj, yes, with regard to be query on the market share disconnects between the cards in force and spends, you are right. To some extent, it is on account of corporate spends. While transaction share wise, we have been maintaining a transaction shape steadily improving. We feel like a competition, perhaps the third largest player has actually recorded better spend. We have seen like public information is also available in others, where the month wise we will look at these trends across our [indiscernible]. When we compare with the -- age information is not available, the breakup is not available in terms of how much of the spend is on accounts of corporate, how much are an account for retail. A comparison of rate trajectory in terms of transaction share versus the spend does indicate that the transaction size has increased roughly for ICICI. That's a clear indication that it's a play of corporate spends. We have adopted a consistent approach. We never wanted to take undue risk in terms of the corporate exposure because we feel like with a low-margin kind of corporate spends, it is always like we need to be mindful of the risk. There, our risk appetite was perhaps, I think, may be different. We are evaluating the opportunities to ramp up while keeping an eye on the risk.

Okay. Okay. Understood. And the second question is with regards to, again -- sorry, regarding the disconnect between spend growth and the receivable growth. Q-o-Q spends have risen like the all-time high, which you mentioned, 31% Q-o-Q growth, but the receivable growth is only 9.4%. And within receivable, the revolver in terms is only 5.8% on a Q-o-Q, so as the transactions have increased. So one question is, is it something which is seein in the second half as well, where the spend to continue to do well, given the festive season and while the receivable growth will remain muted? And the second part is what is driving this significant rise in transactors? Is it seasonal? Is it something which is there in the economy? If you can provide some help there.

So the way the cards -- in the cards, what happens is that -- and I'm giving you the flow. When the customer spends on the card, at that point of time, either you get some amount of spend on the EMI, which we call it as a subvention trend. Some, we convert immediately into a closed ended, which is what we call Flexipay. So when you see the spend increase that along with that, the close-ended loans also have been increasing the new close-ended loans have been increasing at a higher pace than the earlier months, okay? The second thing is that the transactors in the -- for example, let's say, whatever new spends are happening in the month of September, so that will come initially as a transactor spend. And over a period of time, that starts getting converted into some depending on the kind of portfolio spending patterns, repayment patterns, it gets converted into revolvers. And you are right. It is, to a degree, the asset buildup follows the spends on the card. Because unless until there is spends in transactions, the asset buildup will not happen, okay? So this is point one. Second thing is the rates are not exactly the same. You will never have if there is a growth of 100% on spends, then 100% of assets will increase. That is also not there because their old asset gets -- some of that gets repaid, new assets get built. The percentage is varied depending on the profile mix and the consumer behavior mix, which is happening at that point of time. But we are hoping that in the Q2 because of strong spends, which have come up, that will build up into asset in Q3. And Q3 is, hopefully, as of now, we are seeing very strong. And if there is no covid overhang, we should be able -- that it should give further boost to spends, which, again -- because that's the input to be building the asset.

[Operator Instructions] The next question is from the line of Amit Nanavati from Nomura.

Question on revolver, right? Basically, you're seeing it certainly at a macro level, you're seeing higher admissions and pay hikes for the IT and banking industry in general, right. So salary levels are going up and going up nicely. Historically, you would have seen that, just if you can give some sense, does this increase the propensity to kind of leverage through cost or generally, the need to revolve goes down in the transitory period that salaries are rising and you spends kind of catch up over time?

So can you just repeat the question? I think the line was not clear.

Am I audible now?

Better, better.

Yes. So basically, you've seen -- I mean, the largest salary headwind, right, from an industry perspective would be IT and banking. Here, you've seen higher attrition, higher pay hikes across the board. Does this historically, you would have had some sense? Does this increase the propensity to leverage through credit cards? Or does it kind of for the transitory period reduce the need to kind of revolve, which means your revolver book takes much longer time to kind of build up. The things may go up, but the revolved book may not go up in time.

No, we have not seen that, okay? And in fact, in last earlier multiple calls, we have reiterated this. What we have -- what we see here is today when the customer is spending, he has multiple choices to convert into a close ended the term loan balance, okay? So he can take -- convert at the point of sale itself, the interest rates are very low, very competitive, 14%. If he wants to do it at a later date before the payment due date, anywhere between 14% to 22%, the interest rates are available. So revolving is more from a short-term funding perspective that the customer uses if he sees funds coming back to him in the next 1 or 2 months, people will pay revolving in that sense. Now given that, that is the thing -- scenario, after COVID and after RE, we had shifted almost 9% of our asset into RE. That -- all that 9% was revolving at one point of time. So now the new cycle has to start after this. So the new cycle is what we see has already started. This new cycle is, first, you get the new -- you're getting new customers, that is already upwards of 9.5 lakhs for this quarter that those customers are spending. We are already seeing that spend behavior coming back. Average spends are higher than pre-COVID level. Now the last step here is that building assets on these set of customers. Even on these customers, the close generate assets, the term asset is already -- we are already able to see that. It is a revolving balances, which we will have to see as to how it comes out. We have been tighter in our underwriting criteria in the last 1, 1.5 years. So maybe it will not go back to the original numbers, but there is still an increase that we foresee in the coming months.

Understood. And secondly, if I look at the cost-to-income ratio, right, you are back because the acquisitions are back, the spends are back. So we are back to that 56%, 57% kind of cost-to-income ratios from the transitory period till such fine that the revolver book builds up, right, but your acquisitions are back, the spends are back. Do you see this cost-to-income ratio now from these levels at least in the near term, next 1, 2 quarters going further up? Or this where it kind of peaks out?

So Amit, you're right that because what had happened -- and if you look at the business in the last few quarters, and we've mentioned this in the past as well, that this was not a pause but a reset. It wasn't that that due to COVID customers stopped spending and the COVID got over, the second wave got over, customers started spending. It's a reset because the profile of the customer, et cetera, changed. What we have done from our side is that as this reset happened, we had to reinvest into the business. We've got -- started sourcing aggressively, and that's what you have seen in the Q1 to Q2, the movement in the new accounts. So that requires investment. That's what we have done. The growth in spend, both in corporate and retail, that too requires investment. The market is competitive. So one has to invest in the market to encourage, entice customers to spend. And now this is a cycle that has started. The investment has been done, the spends have come. What it would do is that this is the festival season, say, even in Q3, we would definitely need some more investment and we would like to do that. Cost-to-income is something we're very, very particular and we would like to bring it back, but may not happen in the immediate one or two quarters because this is the time to build the business back. And once we've got the right amount of asset and the right amount of interest-bearing assets, you find that our cost to income will get -- will start coming down. But this is something that we're really focused on. It's just that the pace of the business requires that at this point of time, investment is required. And then the normal economies of scale will kick in.

[Operator Instructions] The next question is from the line of Nitin Agarrwal from Motilal Oswal Securities.

Two questions. One is like if I look at the sourcing from under 30 years, which has increased to 41% during the quarter versus 24% at the outstanding level. So if you can share some color as to how the spend share of this type of customers at the age, why this proportion of customers, how much contribution do they make in total spins? And therefore, what implications will it have on our overall spend growth and spend per card?

So as you have seen on the overall basis that the spend per card is now on a higher level -- actually higher than pre-COVID, if we look at it and especially retail spend per card. The reason why we go for more younger customers is that, so that we are there longer with them in their lifetime. So the earlier you get them at the stage of, let's say, 22, 23 as they have started their jobs and they are starting to get their salaries, the moment you start with a product, which is, let's say, a INR 500 a product, even if they are in Tier 2, Tier 3 cities, over a period of time, as they stay longer with you, their incomes will rise, and we have seen that happening with us. Customers have been with us for almost 15, 20 years. And over a period of time, we will upgrade this. So the income stream from these customers is not to be looked at from a more lifetime perspective. And this is what we have seen that these customers stick with us.

Right. But fair to say that over the next couple of years till the time you were able to upgrade the spend per card and the overall spending can come down and we may lose spend market share?

No, no. So see, spend per card and market share are two different things. As our MD sir was saying, that the market share is because of retail and corporate or B2B spends mix and their top line at low margin is more B2B spends, on the retail spends side of it, these customers are actually quite good because younger customers are doing more online spending. And we are -- as you can see already,% spends is upwards of 53 -- between 53% to 54% of the total spending, and they are more savvier. They do their transactions online. They also service themselves online. The cost comes down over a period of time. So it is a -- on an overall basis, we believe that they are the right PG. In fact, our target PG has always been anywhere between 27 to 35.

Okay, sir. And sir, the other question is like the margins have come down sharply over the quarter, mainly I understand with the decline and revolver mix, and this is impacting our interest income. And -- but now also the cost of funds have shown an increase. So what is the, like, outlook on margins like over the next couple of years?

Yes, you were correct. NIM has definitely recorded slight decline. It is also a function of a composition where the transactor balances now accounts for 37%. As the revolver starts, I mean, as -- I mean, Girish also said like transactor balances will take some time to get to get converted into revolver, as we see some pickup in revolver, definitely the yields will improve. Of course, to maximize the income, we were focusing on, in fact, the flows or what we call close any area or otherwise the EMI-based kind of loans. We were focusing on ramping up the Flexipay, otherwise encash, et cetera, and including subvention. We were able to keep pace with the growth in [indiscernible]. That's the reason the share continued at 32%. But having said that, these are the kind of investment what we need to make and that -- so it will take time to -- I mean, to improve the NIM. But NIM is only one part. I mean, interest income is only like 45% to 46% of our overall revenue. We have the other major contributor by way of fee income and other income. So there, we were able to get good growth quarter-on-quarter that we were able to absorb the elevated expenses, particularly the OpEx. 25% increase was a quarter-on-quarter, that we were able to absorb that. and they're still able to maintain earnings before great cost in absolute terms, I'm not talking about as a percentage. But in absolute terms, we were able to maintain the [indiscernible] fee. So this is the kind of investment that we are making now, which will give the results in the subsequent quarter.

So on the cost of funds side, this is more of a play of averages. What we are seeing is our daily cost of fund is more or less the same. And we think that we should be able to maintain this in the coming quarter as well. As sir said, it's more of a -- as the transactors start getting converted into revolver, the yield would go up. And therefore, that's what play on the NIM side will come more from the yield rather than from cost of fund. Cost of fund would more or less be static.

The next question is from the line of Subramanian Iyer from Morgan Stanley.

I had a question on head quality. So if I just run some competitions, what I see is that the slippages for the quarter were roughly about INR 580 crores to INR 600 crores. And so it is broadly flat quarter-on-quarter. So how should we think about this going forward while COVID is obviously an uncertain thing, but other things remaining the same, would you expect this number to come off pretty sharply and normalize?

So if you were to look at our overall GMPs, they have been sequentially lining quarter-on-quarter. So we were 4.99, we came down with 3.91. This quarter, we are down to 3.36. And as you have noted, a lot of our stress book is getting written off and running off. So we add more and more of the stress book goes out, we should see this on an improving trend. So you're right, this should improve over -- I mean, everything else remaining unchanged, we should expect this trend to continue.

[indiscernible] focusing on net caps the NPA going down is also a function of write-offs. [indiscernible] having on taken you expect into. The other question was on, basically, how should we think about this [indiscernible] between income growth and cost growth and medium term over the next 2 to 3 years. Do you expect to see a bit of non-linearity in cost and income growth medium term? Or as you said that you need to keep investing from them?

So when you look at the income growth, as sir had mentioned, while the interest-bearing asset, especially the revolver side was on the lower side, we got the income from the fee and services. As we see higher spend continuing -- the trend on spend continue, we'll continue to get that income. It's just that the transactor conversion into interest-bearing assets, whether into an EMI or the revolver that could change the game. In the near term, I would say that cost-to-income would remain elevated because we would like to pump in a little bit more money into the market. One is the competitive scenario. Second is it's the rebuilding of the business because 1.5 years, you've seen that the spends were moving -- it was not a clear line of growth. It was coming up, but because of some disruption or the other, it would come down. This is the first time you're seeing that in the last 4, 5 months, especially from June onwards, there is a trajectory of growth. So this is the time to invest into the business. The jaws on income and expense at this point in time, I would say, that from the business side, we look at it time to invest. So even if the cost to income remains slightly elevated, that's fine. The moment these customers spend starts converting into asset and asset into interest-bearing assets, you'll find that the cost to income and the operating leverage, everything will start moving in a different direction. So that's how the business will work. And that's how we are looking at it, and that's how we are working towards and investing into the business.

[Operator Instructions] The next question is from the line of Dhaval Gada from DSP Investment Managers.

I had two questions. First is just on the revolver rate. So I just wanted to sort of clarify how -- when do you see the company return to about 38% to 40% revolver, which we had seen pre-COVID. So in your experience in the past, like how many quarters does it take to build up that kind of level from current 27% odd level? And the second question was around, you've been working with some of these fintech companies on the small ticket products, unsecured product. just wanted to understand, would you be able to give some size around your pay later business with these companies in terms of number of customers or the monthly volumes that you do with these partners today. Yes, those are the two questions.

I think with regard your query on the revolver, I think last year when we compare the asset composition vis-a-vis the last year's corresponding time, I think it is at the elevated level of 34%, 35%, mostly on account of moratorium, which actually like rates and no repayment was [indiscernible] no repayment was demanded unless until voluntarily, it was paid with the cardholder. That definitely resulted. Ideally also, we would like to have a 1/3, 1/3, 1/3, like that is typically a kind of stable state kind of composition. But as we responded earlier to one of the queries, the last 1.5 years, we have tightened the risk filters in order to tackle the asset quality. Automatically, that brings in a kind of less richy customers who may have lesser propensity to revolve also. And now we are seeing like asset quality is improving steadily. So we are recalibrating our appetite in a gradual way. So obviously, this will also permit likely a new segment of customers who can add to the revolver. So this is a journey. I mean very difficult to miss whether it is slow, whether we are going to come back to normal composition in 2 quarters, 3 quarters. But we will never lose any opportunity to maximize the revenue. In fact, that is what we are seeing here. Like if a customer may not have a propensity to revolve, but then we will be offering a very -- I mean the CMI kind of loans at competitive rate in order to maximize the revenue. Other parts of Fintech, can you respond, Girish?

So we have no specific tie-ups as of now with any fintech on giving small ticket because we are doing credit cards only. Only thing that we do here is that all our customers are able to -- when they are making a transaction, we have tied up with a lot of partners, so that they can convert this spend into a pay later of 3 months or 6 months or 9 months, while purchasing the goods itself and especially on the online. So all these facilities are available on Amazon, Flipkart, Paytm, almost all large top players. But he has to have an SBI credit card to avail that facility. And we see very large volumes there. We have not declared the numbers, but the volumes are very large when in our customers itself who were utilizing this facility.

And that would be part of our EMI book. Is it correct?

It is part of our term loan book, yes.

Okay. And just one data question. What is the size of the EPP book now? And any provision that we carry on that portfolio?

EPP should should be very small.

EPP is insignificant and it's in the normal course of business. We don't even call it out. That was there in the first RBI RE at that time. We were looking at converting the customer [indiscernible]. Now it is not something that's happening. It's a very small at this time. And just technical point. You said revolve rate and revolver, I'll just clarify. What you see in the asset is revolver. Revolve rate is revolver over -- revolver asset over revolver asset plus rate transactor. So our revolve rate is around about 43%. Revolver at 27% of the asset. Just a technical point, your question was still relevant.

The next question is from the line of Saurabh from JPMorgan.

Sir, two questions. One is how -- what percentage of your spends are travel? And how much is it down versus pre-COVID...

Saurabh, sorry to interrupt you. The audio is not clear from your line, sir. Please check.

Your question was how much percentage of your spends is on travel. Is that -- was that the question?

Yes, yes. Sir on Page 10, the last category, what percentage of spends are from travel segment? And how much is it down versus pre-COVID levels?

So travel, typically, on a pre-COVID because I'm taking the whole category, travel, travel agents, airline and that because there is a -- there used to be a variation on a monthly basis, but would fall anywhere between early double digits, okay? So it used to be that. At this point of time, as we have put in our investor presentation, it is lower than pre-COVID. Travel, entertainment, is actually the only category which is lower than pre-COVID, rest everything has gone up. And the best part is that the point of sale also has gone up versus pre-COVID. So if travel and entertainment as a category is still down, primarily because overseas travel is still not opened up and international travel has to go up. Domestic travel we see is almost close to normal.

Yes. And how much is it down versus pre-COVID? I mean, can you quantify that percentage?

Okay. So it is it around -- would be around 2/3 to 70% of the pre-COVID numbers.

Okay. Got it. The second, sir, is on this pay later thing. So some of the other private banks have launched a separate pay later option for their customers. So will it be a fair understanding that if SBI would launch the pay later option that should rest within SBI Card, I mean it will flow through as that much or that can happen separately as well?

We cannot comment or we don't know what the strategy of SBI in terms of BNPL. But as far as we are concerned, like a credit card, you are already -- it is always like a BNPL plus. So -- but this space is interesting. Definitely, a lot of buzz is there, a lot of activities happening. Number of players -- new players there entering this space. We are watching it closely. And as a segment, we feel like it's a different segment, slightly different from a matured space, but customer base, but it is like expanding the market. So it is like mostly -- it is new to the credit kind of segment of customers. It is a very, very thin file in [indiscernible], this kind of segment. Once they evolve, then they can become like a credit eligible for the credit card -- giving credit cards also. So we see there's a kind of opportunity. They are just observing, but we don't know much about SBI's plan.

Okay. And one last question with your permission, sir. Basically, on your credit losses, given we have almost gone through 18 months of COVID, and I'm underpressuming your underwriting filters were tightened to these 18 months, will it be fair to assume that as your -- this restructured book rolls down and we come out of COVID, a forward credit cost should actually be lower than normalized levels of this 7%?

We have always maintained that actually, the trajectory of the credit cost will be correlated to the trend of RBI RE. So that's a reasonable assumption that as RBI RE share comes down further, you can expect corresponding kind of improvement to happen definitely.

[Operator Instructions] The next question is from the line of Antariksha Banerjee from ICICI Prudential AMC.

First question is actually for Amara and Girish, sir, both. I know revolver has been discussed a fair bit. I just wanted to understand from a structural perspective, as we come out of COVID and in the medium term, right, and compare that to what it used to be pre-COVID. So during this period, your sourcing has predominantly been more safe. If I look at the quarter chart, it's more from -- I mean, it's less from category B salary customers. It's much more from Tier 2. You're sourcing more from SBI. Do all those have an implication on where the revolve rates -- revolver rates rather will stabilize after COVID on a steady-state basis? And what's the road map from getting from the 27 to the 1/3 of the categories that you aspire to be? And also, is the category of spend and influential in whether those transactions are converted to EMI or eventually revolve? In the sense that the travel is the only one which is lagging. Is that also correlated with the fact that revolver balances are not picking up?

Okay. So two parts to your question. I'll try and answer the first part -- actually, the second part. Yes, there are certain categories which are more amenable to converting into the EMI products. And these categories would be consumer durables, specifically, sales of smartphones. This category would be large ticket size furnishings. This category would be people travel, obviously, as international travel used to be in one of those categories where people who do it for leisure would convert into and pay in installments. So there are certain categories which are more amenable to this kind of for EMI thing. There are, however, what I would say is, there are two tailwinds to this. The first is that as the overall spending increases, you would -- and the customer spends more, there is a propensity to convert that into installment payments. The second is there are certain -- there are a lot of these categories, especially in Tier 2, are now opening up majorly. So smartphone penetration is going from changing smartphones every year. So on a whole lot of bad consumer behavior and there -- what I would put it as that their propensity to be comfortable with installment lending products is far, far higher. So that bad consumer behavior change is very helpful in that sense. On the revolve piece, as our MD sir was also saying that, yes, in the last 1.5 years, we have been more careful in terms of our choice of customers. So the revolve rates will -- maybe will not be as high as what we are used to seeing in a pre-COVID level. But there is definitely an increase possible from the presence levels.

[Operator Instructions] Next question is from the line of Abhijeet Sakhare from Kotak Securities.

First question is on the totalized payment products. Just wanted to broadly understand what's been the user adoption of this particular product? Specifically, customers using SBI cards as an offline location and paying through a QR code specifically. At the back end, it gets paid out using SBI cards, but the front end is essentially some form of [indiscernible].

Yes. So your tokenization is -- while I'll come to tokenization, but the simple one is the three trends. First is point of sale is growing and it's come back to pre-COVID. The second point which you mentioned was around -- so the Tap and Go is now more than 1 out of 4 transactions on the POS is Tap and Pay, we are increasing it to 5,000, this has helped quite a lot. People don't want to touch things and Tap thing is working out quite nicely. On the Google Pay and Samsung Pay and wherever we have done the tokenization, we -- so every month, we see a higher increase in the customer adoption in terms of numbers, but the numbers are still not very high. It's still early stages. It is now getting -- so while we can put in -- send you the numbers later on exactly what it is, but the numbers are at very early stages on this.

Sure. Second one is on reward points. What's the general utilization of reward points that you've seen over the years? And the question is, in the context of why don't we go into full cash back and offer some sort of an instant gratification. And related to that, do we -- at the back end, do we have the ability to personalize redemption as per the customers' patterns or behaviors that we've seen over the years?

Okay. We do cash back, which is instant cash back at with online case. So presently, there is the one which is running with Flipkart. You can go there and use your SBI card to get a 10% cash back that runs at multiple places. Online, it is easier because instantly, it is possible. We also do cash back offers, which customers get later after looking at their spends. Why can't we get away from rewards fully? Because rewards is given to the customers for all the spend. Cash back is not necessarily given on all the spends. The last part is about what people receive on cash back. So we have close to 300 to 400 product offerings and vouchers and customers can also convert into cash directly onto their credit statement. Direct credit to statement is preferred, but it is -- but majority of the customers still like to have e-vouchers and pots and plants because that they can gift to others or do various things with it. And yes, we have the capacity to not only personalize this on an individual customer level, but we -- so on basis that we run programs also, but we also try to change behavior because direct credit into the statement is, from a redemption perspective, it's more expensive to us compared to when the customer takes a voucher for pots and pans, where we enjoy some discounts. So we work at changing the consumer behavior also in the long term also.

Got it. This is helpful. Just one data on the write-offs for the quarter. That will be all.

Yes, you can work it out, giving the numbers? So how much is the number?

It's about -- the write-offs would be 670-odd.

[Operator Instructions] The next question is from the line of Bhavik Dave from Nippon India Mutual Fund.

Just few questions. One, I see the subscription-based revenue line item being a little soft. Any color on what is happening around there? Question two is on the investment that you're doing, are we doing anything to improve our value proposition in the sense that maybe come up to the digital card or make our app more country with having the card linked on the app and make it more like a wallet and maybe easier to spend online using our card or QR -- or scanning QR codes? And lastly, on the provisioning bit, what will be the outstanding provisioning on the restructuring book? And just a clarification, the INR 200-odd crores that has 90 overdue in the restructured book is already a part of the INR 900-odd crores or 3.4% GNPA that we have, right?

Yes. So I think just a correction on the earlier one, I mentioned the gross write-off is 670, it should be about 640 odd. That's the right number. Now in terms of provisioning on the restructured book, like we mentioned earlier, for the restructured book, anything that is between 30 to 90 days, we provide at about 65%, which is a normal NPA provision rate. And any NPA on the restructured book, we provided 100% and that remains unchanged. And yes, the RBI RE NPA is part of this 3.36% GNPA that is given out.

Correct. And anything on the INR 600-odd crores, which is non 30-day overdue? And obviously not the -- remaining part of the INR 1,000-odd crores, does that have any provisioning? Or does that have that INR 230-odd crores of management over the provision? Is that against that?

So let me -- what like I mentioned, for RBI RE, anything that is not billing for we provide at the rate specified by RBI, which is 10%, okay? So that's mandated provision rate. 30 to 90 is provided at 65% and greater than 90 is provided at 100%.

Perfect. Well understood. That's perfectly understood. And the other two questions, one is subscription-based fee -- And second is on the -- improving the customer feel on the app on -- or maybe a digital card to get the experience better for the customer on the card?

So you want to know the amount, sorry?

No, no. We know the amount, but I'm saying that the momentum on that, like pre-COVID and what it is today? The momentum of that spend growth of subscription fee has come off a bit. So I just want to understand, are we getting more cards with lower -- at the lower end? Or is the momentum for the free card a little higher? What is happening on the subscription fee base? That's one. And second is on the digital card or the app being a little more friendly and making it QR friendly or maybe like a wallet, so that the customer uses that more often? This is what to understand it.

Subscription-based fee is comprises of two things. One is the membership fee, which we charge, which will be basically to the new sets of customers that we've acquired and it will also have the renewal fee, which will be on the base. So renewal fee will be a larger number compared to the membership fee because membership fee only comes on the new accounts. Now membership fee depends on the number of accounts that you're sourcing in a particular month or a quarter. And generally, if you source say, in one month, say, month one, then the membership fee starts coming from the second month onwards because by the time you build the customer et cetra, it takes a month or so for it to start reflecting into the accounts. The other thing is that it gets deferred over a period of 12 months. So all the changes that you see are gradual in this. One is how you're picking up the sourcing. Second is it's getting deferred over a period of 12 months. So the rise in that you see is gradual. As far as the fee is concerned, there is no -- I would say that sourcing of account has increased. So the fee will show a gradual increase and also the premium portion of the total sourcing has also increased. So that too will help the uptick in the fee. But then, like I said, since it gets deferred over the period of 12 months, you don't see a drastic change in a particular period.

[Operator Instructions]

So yes, you're right. We are working on our mobile app, but we are looking at it more from hyper personalization perspective with respect to each customers given that our number of customers is fairly large and people requirements are different. Some people wanted to be funkier, more wallet like, but some people want to be quite safe and have more security parameters built into it. So depending on how the consumer behavior is, we're wanting to look at the UI/UX of the customers. As far as the QR code and other things are concerned, the Bharat QR thing is already available on the app. Whatever is from a payment perspective is available on the networks, which is either Visa, Mastercard, RuPay or Amex, we make that available on our mobile app, be it the QR code, be it the tokenization. So we've been working on that to give all -- almost all the 100% of our servicing onto mobile apps. So today, a customer actually doesn't need to get in touch with us unless until he is wanting to report a lost and stolen, back to back you can do on the app. But for most of the services, the customer can actually use the mobile app to service themselves. But you're right, it requires -- we'll have to continuously update it, and we are working towards the same objective.

[Operator Instructions] The next question is from the line of Rohan Mandora from Equirus.

So [indiscernible] one was in terms of the employee cost, we are seeing a decline both Q-on-Q and year-on-year. So just want to understand, is there a reduction of employees? Or what is driving the reduction in employee cost? And second, on the liability side, the borrowings from CPs has been coming down. So earlier, we had indicated from an ALM perspective, the CP composition fits into the scheme of things. But is there a premium strategy there in terms of the borrowing or not?

I didn't get the second.

So first, let me answer about the salary employee costs. Now a couple of things. It has the cost of ESOP also. So a bit of accounting-related thing as to how much charge has come and nothing has touched or reduced the number of employees, et cetera. It is more the average had found as a marginal change. So it's more of an accounting related this thing rather than anything else. So no reduction in headcount, et cetera. Yes, we haven't really increased the headcount, it's more or less stagnant at that level. So it's more to do with that. Sorry, I didn't get the second part of the question, if you can repeat that?

Sir, in the borrowing mix, if you look at the commercial paper, CP borrowing is at 6% in Q2 FY'22. And if we look at the earlier part of FY'21, it was around 15% to 20%. So from the ALM perspective, as we had indicated earlier, the CP does make sense because most of our assets are short term. So is there a same strategy wherein we will have a lower CPs incremental since that would have again some impact on NIM?

Yes. So let me answer this. One is when you say that our assets on the lower side, so one should borrow short term? No, no, it's not really like that. There is a core asset, which is always there, so you need to borrow at different intervals as well. So that's the first thing. CP, again, depends on how much we borrow largely on the working capital limits. So we have a large working capital limits. And working capital limits, what happens is if you look at it in the last few quarters, our asset buildup was not so much, and that was mainly because of the COVID-related this thing and while we had higher working capital limits. So to avail of CP facilities, you need to have -- you need to be utilizing your working capital limits to a certain specific percentage. If your utilization is lower than that, then the CP is not available. What we did was since in the previous quarters, it was -- our working capital utilization was lower, we did not go to the CP market. we relied mainly on the consortium borrowing. But that too was coming more for us at the similar rate what we were getting from the CP. So from a rate perspective, we were not in any way, got impacted. The instrument wise, yes, we changed instead of the CP, we took WCDL sector, but our WCDL sector also hovered around a similar rate as the CP. So from a rate perspective, it did not impact us, but the instrument was impacted.

We'll take the next question from the line of Karthik Chellappa from Buena Vista Fund Management.

So if we look at the 30-day activity ratio close to 50%, it's still about 4% to 5% below the pre-COVID levels over what period of time do you expect to reach that ratio? And related to that, if I look at the other operating expenses of about INR 1,200 crores, how much of that would be variable and linked directly to customer acquisition?

On the first part of your question, we will -- because a lot of those active customers were put into RE and locked for future customer spending at that stage, so that is why you saw the number coming down. What we already see is that on a like-to-like basis, we would already be anywhere between 52% to 55%, and this number is continuously going up. So as you can see, already we're taking all those cards into consideration also, as I was mentioning in the last quarter's update also, that it's -- so it's now 50% to -- so this is an average of each month. So this is July -- June, July, August -- July -- sorry, July, August, September, it is an average of all those three months. It's running at 50%. And it is -- what we have seen is that in the seasonal months, it's going further up. So this is on a continuous increase. Some of the segments, for example, year 1 or so, we already see that they have already reached. Actually, some of them are higher than the pre-COVID levels also.

Got it. Sir, and on the other operating expenses, sir, how much of that will be directly linked to customer acquisition?

We don't give that breakup, but customer acquisition cost for the card business is a substantial investment that you do. Two big lines of costs which are there, which, one, is the spend-based cost, which comprises of cash back, cost back reward related. And the other one is the acquisition cost. So we don't give the breakup, but I can tell you both of these costs are considered a major portion of the operating expenses.

We take the next question from the line of Param Subramanian from Macquarie.

I wanted to ask on something you mentioned, which was that the POS-based checkout financing, you're seeing good trends there. And this is part of a larger trend that we're seeing across the industry. So do you see this eating away on the share of the percentage of revolver in your receivable mix going forward since this is a convenient mode of payment? And could this affect our targets of ramping back the 27% revolver back to 33%, 34%? That's question one. And secondly, I also wanted to ask on the revolver portion, a lot of the BNPL fintech players, their value proposition is largely targeted towards the kind of customers who evolve with their credit cards. So does that affect your revolver percentage? Those are my questions.

On your the first part, these options have been available since a long period of time, but consumer behaviors can change because this growth in -- as you said, the checkout based conversion into a term product or a loan product is there. One thing is to be noted is that on a credit card, the average credit limits are fairly high, whereas some of these players, they give the limit. Now they have started experimenting with larger limits, but it's still not that high because the average limit on the credit card is upwards of INR 80,000 to INR 100,000. So in those segments -- and once the customer has a card, it is the easiest option for him because it's at a point of checkout. It's single click. You don't have to fill any document. You don't have to give any name. You don't have to do anything. So it is -- so anybody who has a credit card is -- actually will use a credit card, and we are seeing that. So the game plan or strategy for us has to be that as these customers take these loans and build their credit history, we are able to give cards to them on a continuous basis and grow our portfolio, so that they come to use a product which is more easier, gives them rewards, gives them cash back, can be used internationally and also will be able to give them the benefit of the pay-later option, which is available.

Ladies and gentlemen, we will take the last question from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.

Firstly, I just want to understand shouldn't the instant base fee go up and revolver proportion is increasing and vice versa? That's question one, I have. And second -- the second question is in the ALM table for the 1- to 3-year bucket, last 2 quarters you have seen an inflow increasing there, almost by INR 250 crores last quarter and again this quarter, some another INR 100-odd crores. What is happening? Why is the inflow in the 1- to 3-year bucket increasing? That's question number two. If you can answer these, and then I'll come back later.

So instance-based fee comprises of a couple of things, not just the late fee. It also has over-limit fees. It also has check bouncing, check dishonor on or debit failure, et cetera. So while yes, you're right that if there is an impact on the revolver side, the late fees would get impacted, but sometimes it does get compensated by overlimit fees, et cetera, as well. So it's a play depending on which side is up. But yes, in the normal course, late fees and revolver side would go hand in hand because late fees and revolver comes like that. So that's one. Second question, Roshan, you'll have to repeat. I couldn't really catch. There were some...

ALM 1 to 3 years?

ALM 1 to 3 years has seen inflow last two quarters -- consecutive quarter, I mean, substantial inflow. So what is happening there?

So in ALM 1 to 3 years inflow side, you have the EMI portion of our assets, which is there. So as we are increasing -- if you look at it, even though our EMI percentage has remained at 32% quarter-to-quarter, but that 32% has been maintained on an increased asset base. So -- and also the kind of EMIs that we do, there is short-term EMIs relating to subvention Flexipay. Then there is a long term on the Encash side, which is greater than 1 year and goes up to 3, 3.5 years. So that one is also rising, and that's what impacts the inflows into 1 to 3 years.

And how should I think about the Stage 2 asset's number, 11% odd number? How much of that is Stage 2? What is the experience? How much of it flows forward?

Sorry, can you repeat?

The Stage 2 assets number, which is about 12% -- slightly less than 12%, how does it -- I mean how is the behavior generally? How much of it flows forward?

I don't think we really -- we've not given that flow rate out is how much of Stage 2 goes into Stage 3. However, I think on a broad basis, I can tell you that we see an improvement in the absolute Stage 2 itself quarter-on-quarter. I think like we mentioned earlier, as some of our stress pool gets out, the fact of Stage 3 assets are in general coming down is on account of pool state. But, of course, is that the stress pool is getting out, getting written off. But incrementally, whatever we've been booking in the last 1, 1.5 years, we have significantly tightened our credit light. So the quality of the book of the last 18 months is actually quite good. So overall, we are finding the slippages from 1 to 2 as well as 2 to 3 are showing an improving trend.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Rao, MD and CEO of SBI Card for closing comments. Thank you, and over to you, sir.

Yes. Thank you, Faizan. So with market steadily reaching the pre-COVID levels, increase in consumer confidence shows that Indian economy is on a recovering part. So higher consumption trends visible in the ongoing cases season also indicated span. We will continue to follow healthy financial and corporate governance, which form our core strength. Before I conclude, let me wish all of you a very happy festive season. Thank you. Enjoy the festival season, stay safe. Thank you all.

Thank you. Ladies and gentlemen, on behalf of SBI Cards and Payment Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.