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

Ladies and gentlemen, good day, and welcome to SBI Card 3Q 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 Rao Amara, Managing Director and Chief Executive Officer of SBI Card. Thank you, and over to you, sir.

Thank you, Faizan. Good evening, everyone. I extend a warm welcome and wish you a very happy New Year. Thank you for attending the earnings call for Q3 FY'22 today. We highly appreciate your presence and continued support. Firstly, I hope you and your loved ones are safe and healthy. The third wave of the pandemic can be felt, but however, many aspects offer hope. There is higher preparedness this time around, 1.6-plus billion vaccines have already been administered accumulatively with about 70% of the adult population now covered by both the doses. Another positive is that over 50% of [ 50 to 80 ] age category have got the first dose of the vaccine. The rate of hospitalization thankfully is lower than the previous year. Despite continued battle with the pandemic, consumer confidence and business optimism continues to be stable. Looking broadly at Q3 FY'22, as expected, it started with a festive season, significantly driving the overall credit card spends. As a result, we at SBI Card saw our total spends crossing INR 1 trillion by November 2021 itself. Retail alone crossed this mark, INR 1 trillion, in 9 months, that is in December. As per RBI report, the total credit card base of the industry expanded to INR 67.6 million in November '21, registering 12.4% year-on-year growth, which is the highest in last 16 months. However, still the penetration in the country remains very low, offering a long growth run rate. Digital payments in India have grown at a very fast pace and credit cards continue to grow steadily as an industry with a strong bounce back after Wave 2. The government and regulators have been providing a number of enablers to support penetration of digital payment formats. Coming to the question of MDR. The discussion paper from RBI is still awaited. In the past also, discussions have taken place on MDR, but credit card has been excluded in view of typical nature of the industry, which includes costs to the issuer towards creditors, free credit period, reward cost, et cetera. However, in case a dividend takes place, various levers do exist with the industry players to optic pay impact. I will now come to business overview and new initiatives. Q3 FY'22 can be characterized as a return to growth and profitability. Let me share with you the reason for this optimism to start with Q3 FY'22 had two big business milestones for us at SBI Card. For the first time ever, we added 1 million plus new accounts during the quarter. During Q3 FY'22, we also saw highest ever quarterly spends crossing INR 55,000 crores, both retail and corporate spends put together. This performance is an outcome of customers' belief in us and the ability of our go-to-market strategy. Steady and robust increase in new accounts has helped us to expand our customer base significantly and, thereby, overall spends also. Our cards in force grew at 15% year-on-year in Q3 FY'22, thus reaching [ INR 1.32 crores ] mark. As per the RBI November 2021 data, our market share of cards in force increased to 19.2% from 19.1% in FY'21. As mentioned earlier, our cost spend reached INR 55,397 crores, witnessing 47% year-on-year growth during Q3. There has been a sharp increase in retail spends and corporate spends, with both witnessing a 36% and 93% year-on-year growth, respectively. Importantly, we witnessed 34% growth in discretionary spends. This is highest since onset of COVID-19. We continue to bolster our product portfolio. During the quarter, we rolled out the SBI Card funds, a first of it's kind credit card categories to fitness & wellness segment. This is other example of our sharp focus on changing consumer needs and spending behavior and aligning our go-to-market [indiscernible]. Let me briefly also share with you a few actions for future capacity enhancement. We continue to invest in technology to build future capabilities and leverage the digital for business transformation. We now issue instant card for our ETB customers, that is the existing customers, helping achieve cost efficiencies and yield fastest activation. The digital journey for NTC prospect is also in the pipeline. We have upgraded risk models to adaptive machine learning, which has yielded process efficiency and will further help generate balance buildup and EMI conversions. We are upgrading marketing technology stack, which will enhance our engagement throughout the customer journey and to drive better ROIs on marketing spends. During the quarter, SBI Card partnered with Paytm for tokenization enhancing convenience for our customers. We have also upgraded our SBI Card mobile app with smart multi-experienced solutions, among other enhancements. We have been witnessing favorable trends in asset quality, which has continued into Q3. I would also like to convey that there is no impact of the recent RBI surplus on most Indian [indiscernible] recognition [indiscernible] as SBI Card was already following this [ now ]. Lastly, we have our commitments to be compliant with the regulations introduced time to time by the regulators, we successfully switched to the new mechanism for recurring payments as per the deadline mandated the RBI. We are also ready with card-on-file tokenization implementation. Though the rollout deadline for this has been further extended to 30th June, 2022 by RBI. I'm extremely grateful to my colleagues at SBI Card, who have always risen to the occasion and made contributions that have led to our success even during the difficult pandemic phase. I'm also thankful to shareholders and other stakeholders for their constant support and their strong belief in us. Let me now take you through our financial performance for Q3 FY'22. As can be assisted from some key metrics, I have already shared, it is the power of robust business model under a calibrated measures that helped us to achieve such strong business performance. During Q3 FY'22, the SBI Card saw strong revenue performance, backed by resilient interest income and strong fee growth. Our business model is [indiscernible] strong with robust fundamentals. And based on strong business performance in the quarter, the company achieved PAT of INR 386 crores at 84% year-on-year growth. Driven by 47% growth in spends, receivables have grown by 13% year-on-year to more than INR 29,000 crores, further leading to total income growing at 24% year-on-year to INR 3,140 crores. Our operating expenditure was higher by 28% year-on-year, driven by higher business volumes, festive campaigns, and our continued investment for future growth. On asset quality, our GNPA has come down to 2.4% as compared to 3.36% at Q2 FY'22 and 4.51% at Q3 FY'21. Net NPA for the period is at 0.83% as compared to 0.91% at Q2 FY'22 and 1.6% at Q3 FY'21. Overall, RBI RE book stands at 2% of the total receivables as against 4% in Q2. We have created additional overlay of INR 76 crores for Wave 3 and the overall management overlay to cover averages for future credit risk stands at INR 162 crores as on December 2021. Return on average assets for the quarter ended December 21, is at 5%, which is higher by 179 basis points as compared to 3.3% for Q3 FY'21. ROAE is at 21.2%, which is higher by 742 basis points as compared to 13.8% for Q3 FY'21. We have delivered consistently improving business performance over the quarters. And when we see a consolidated 9-month view, the results are impressive. Our new accounts have grown by 36% year-on-year, spends by 53%, and our receivables grown by 13% to closed INR 29,000 crores. PAT of INR 1,035 crores at a growth rate of 28% enabled by strong revenue performance and lower credit costs. Our portfolio quality has been improving. GNPA rates have come down to 2.4%, and the ECL rates, excluding additional overlay, at 3.4% is very close to pre-COVID levels. Our liquidity position continues to be strong during Q3 and the capital adequacy ratio for the period ended December '21 is at 24.2% [indiscernible] regulator minimum of 15% and Tier 1 is at 21.3%. Our liquidity coverage ratio for the period ended December '21 is at 73% as against a statutory requirement of 60%. Our credit ratings remain excellent with A1+ and AAA ratings by CRISIL and ICRA for both short-term and long-term borrowings. Overall, while the industry experts and the government are hopeful of lesser impact of current COVID-19 third wave on the business and economy, it is best to move forward with caution and closely monitor the domestic and global cues. At the same time, I would like to reinforce our belief in the inherent strength of our business model and the risk structure which has so far helped us maintain a high level of business resilience and ensure sustainable growth. Tremendous growth opportunity in [indiscernible] credit card market, the SBIC is well placed to exploit it to grow further. We are committed and will continue to pursue all opportunities to maintain a sustainable growth rate to deliver great value for our shareholders. With that, let's open the call for questions Faizan. You may please open the call.

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

I had a few questions related to -- the first one was on other income. So during the quarter, we saw about INR 250 crores of other income. I presume INR 140 crores was related to recoveries, what explains the balance number, it's higher than the [indiscernible]. So that's the first question. The second one was on the spend base fee. So one of the observation is that it's -- pre-COVID this number is to be about [indiscernible] fee as a percentage of overall spend used to be about 1.6% on average. This number in the last few quarters was about 1.4% and this quarter as well, it's been around the same level. So what would drive this number higher? Is it spend composition or any other variable that one needs to keep in mind? So that's the second question. And the last one was on cost to income overall this quarter the number was around 60% highest since the time [indiscernible]. So is directionally -- is it a quarterly phenomenon? Or directionally, any comments that you have on cost to income would be useful.

Yes. With regard to you're clarification -- seeking a clarification on why there is increase in the other income, you are right, INR 140 crores roughly is on account of recovery. Around INR 108 crores is on account of GST refund, which, a couple of years back, we created as a provision. It was a kind of double payment. We claimed it from the authorities and we had to adopt a legal recourse for that. So finally, judgment came in our favor, and we got the money refunded by GST authority who translated [indiscernible] granted provision reversal. So it was recognized as other income.

Understood.

Yes. With regard to spend-based fee, yes, the trajectory is more or less around percentage. Girish, you can expand on this.

You're right, it's gone up because in the mix, the corporate spend has gone up higher. And on corporate expense, our fee rates are comparatively higher than retail spends.

Sir, sorry Girish, actually it has gone down. If you see for the quarter, it's about 1.41%. This number pre-COVID used to be 1.6%. And last few quarters was about 1.42% to 1.44%, so I believe it should have gone up given the corporate mix was higher, but if I remember right, the number is about INR 780 crores spend-based fees.

So, Dhaval, we'll come back to you, okay? But from a mix perspective as a rate, corporate rate is higher than retail. And as the corporate mix has increased this quarter, you would see a rate going up slightly, okay. Let us check back on the numbers that you [indiscernible]

With regard to your query of cost to income, that directionally whether it is unique to Q3. To some extent, you are correct in the sense like Q3 [indiscernible] which cost for conducting a lot of marketing campaigns and extending the cash back to customers. On top of it, our corporate spends also increased by almost 93%, which entered again passed back to the corporate customers. Of course, the business-related investments are out today in terms of new acquisition, our new account sourcing has been quite robust at 1 million, which is like a 10% year-on-year growth. So all these culminated in terms of higher cost-to-income ratio for the quarter Q3.

The next question is from the line of Anuj Singla from Bank of America.

Sir, my first question is regards to the impact of competitive intensity. So one of the biggest private banks highlighted in the recent quarter, there is a lot of pressure on fee and income. Have we seen similar waivers in this quarter on the late fee or maybe on a membership fee? And the second part of that question is, does it extend to MDR as well? So there is a concern that because of the competitive intensity, the MDR rates continue to trend now. So even if the mix remains same like to like, if you can give some commentary on that or retail versus retail. Should we see MDR rates trending down from here, is it a [indiscernible] going forward?

So Anuj, on the MDR, what happens is, as an acquirer, when you're dealing with merchants, you can have a contract for an MDR, okay? So as we are in the issuing business only. So for us, we get our income change, which is dependent on the [Technical Difficulty] and the types of cards, which is used at that merchant outlet. So our interchange fix come with respect to Visa and Mastercard, and RuPay and Amex. It does not depend on the exact contract of MDR acquiring bank and the merchant. So even if the MDR keeps going up and down, our interchange is completely protected [indiscernible], okay. And as far as the other question that you asked on the competitive intensity, yes, competitive intensity is there, but we have not seen any increase in waiver rates across the portfolio. It is broadly similar waiver rates that we have seen in the past of either whether it is late fee or annual membership fee, it is broadly the same trends. There is no major change or no change, which is what making some differences or changes into our policy levels.

The next question is from the line of Shubhranshu Mishra from Systematix.

[indiscernible] on the risk management if you could explain what kind of collection infrastructure we have, how many collection agencies, and how many on-roll collection managers and off-roll [indiscernible] fees, that's the first. Second is, if we can understand the cost of acquisition of the SBI customers versus the non-SBI customers. These are the 2 questions.

So in terms of collection infrastructure, so we have a fairly extensive network. And the -- it's a combination of telecalling sectors that we have, which is, again, a combination of some [indiscernible] with our own staff and some is in agency. And we have a large number of field agencies specifically to balance some of the higher market. Now in terms of agency numbers, we have 500-plus agencies. So I think the infrastructure, whether in terms of telecalling or even physical reach is really not an issue. There are fairly good agencies now available. Additionally, we have a very robust collection system as well, so which is a workflow management to manage all aspects of collection, which also has a component for us to be able to do digital collection. So I'm not sure if that answers specifically your question, but in terms of the infrastructure, we don't really have any concern if that was your question.

Number of employees in our systems, who are in collection [indiscernible].

So our opacity If you will include all agency managers would be in excess of 700.

And the second question?

[indiscernible] of cost of acquisition difference between Banca channel and open market channel, yes, there is a difference. Banca channel tends to be a lower cost of acquisition than the open market. There are multiple other variables which determine the cost of acquisition in a particular period. So it isn't that there's a fixed value of difference between the two. But directionally, if one wants to understand maybe it's a rough idea. It's a range possibly of 0.7 to 0.8x of open market cost of acquisition, possibly you get in Banca, but like I said, it varies. There are many other factors that will come into play. But in Banca, our ability to run pre-approved programs is fairly strong because of the information that is there on the bank accounts, and that can be used in building models, which gives us a better throughput.

The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.

Two question from my side. In your opening remarks on the MDR discussion paper, you mentioned that the industry as well as SBI Card has various levers to fully pass it on. Assuming that to be the case, what do you think will be the impact on industry growth rates?

Yes. When I said levers, it is basically looking at the value proposition, typically, credit card has in terms of pre-credit period of 50 to 52 days, which has to be funded by the issuer. And then the credit risk being gone with issuer and of course, the strong loyalty and reward kind of program, the cash backs and all that stuff,these are all the benefits that are through to the customers. So what we were articulating is that if the change is very significant then, obviously, that will prompt the players to look at what components can be picked and how much can be observed or how much to be passed on to the customers. This is all it end up I mean opportunity that is there. But having said that, still we need to see the discussion paper, I believe RBI is yet to come out with the discussion paper. We don't even know the contours of the changes. In fact, we're hopeful that actually the kind of dispensation or the kind of recognition what you were giving to the credit card industry area, we are hopeful that they may continue with the dispensation. But nevertheless, we need to wait and watch for the discussion paper.

Okay. Got it. My second question, sir, is that this is the first time, I think, in a quarter where we had crossed 1 million in new accounts. The terms of these 1 million cards that we have issued compared to, let's say, last year, same quarter when we added about 900,000. Have there been any distinction in the terms that we have issued either in terms of the card fee or waivers or any other special schemes that we have done or are they broadly similar? And I also noticed that this quarter, the share of Tier 2 and Tier 3 in new account sourcing is probably one of the highest in the last 6 to 7 quarters. What would explain that?

See normally, we know we always target a kind of Banca and open market contributing 50%, 50%. So Q1, particularly when you look at the quarter 1 of the current financial year, the Banca share was less. But then from Q2 onwards, they have picked up and their sourcing has increased as was presented in the slide. Banca contributes majorly to these Tier 3, Tier 4 kind of town, where we are comfortable sourcing, where we need not set up separate offices for collections, et cetera, because typically we have access to the operating accounts of these customers. The Banca provides that comfort. So based on the [indiscernible], we are actually able to reach out to these Tier 4 customers. So whenever Banca performs extremely well [indiscernible] you can see a significant contribution from Tier 3, Tier 4 customers.

And no change in terms, right, in terms of fees or fee structure also for the new accounts?

Absolutely. I mean, this is similar to any other quarter.

The next question is from the line of Param Subramanian from Macquarie.

Firstly, I wanted to ask on the revolver mix. So obviously, we're well below in a pre-COVID sort of levels. But do you think it's a sort of bottoms up and will improve from here? Any comments on that? And secondly, on your credit costs, you're still at about 9% gross credit cost, whereas pre-COVID that used to be about 6% to 7%. So does that -- I mean, how long before we get back to that sort of level. Those are my 2 questions.

Yes, I think with regard to your revolver -- question on revolver, having seen the kind of valuation that happened throughout the quarter, of course, we are giving the month -- quarter in pictures to you, but internally, we look at the trending part, it has bottomed out in October and again started improving. In fact, in absolute terms also, while the EMEA has grown by 9%, revolver kept pace with that. Ideally, it should outpace that growth so that actually its contribution to the overall EMEA should increase, but it is taking time. So definitely, it is taking slightly longer time. But we are hopeful because as you know, like we have [indiscernible] on certain segments of customers 1 year back or maybe about 15 months back. And slowly, depending on the kind of comfort what we have, we are recalculating [indiscernible] these segments of customers, not complete a [indiscernible] reversal, but carefully, we are picking [indiscernible] subsegment of these customers. And of course, we have the benefit of some alternate data, we are consuming that in terms of carefully [indiscernible]. So this is a journey. So we are hopeful that this will improve, but it will take some time. With regard to your other question on the gross credit cost, yes, I think to some extent, I mean, the trend line is okay, particularly if you take out INR 76 crores overlay, which is more like a contingency reserve what we created. It is not allocated to any segment. So it is not for any identified stress. It is more like keeping a cushion for the -- in case the wave 3 impacts the delinquencies that kind of contingency. If you take it off, it is actually 7.9%, so which is in line with the trend expected. But would it have been maybe 6%, Yes, ideally, we should have -- we would have result, but slightly, the RBI RE portfolio flow rates, I think they were higher than what we anticipated. So that we have to observe in the current quarter in terms of recognizing the stress and even accelerating some charge up, in fact, that will be closed in the note also that more than INR 200 crores, we went for accelerated charge up to [indiscernible] corresponding provision relief. But the overall percentage in the RBI RE, if you look at, it is only 2% now. And out of this 2% also, 70% of the portfolio is almost current. That means like it is less than 30-day delinquency. Only 30% is in 30-plus bucket. So we are very very hopeful that actually the credit cost will further come from.

Just if I could ask one last question. Could you explain the rational for this INR 80 crores, management overlay you've made because asset quality tends to be improving, [indiscernible] coming down, and do you look to reverse this anytime soon, as when the things are fine after the [indiscernible].

So like sir has mentioned, the asset quality trend sees sequential decline quarter-on-quarter. We have made a contingency provision of INR 76-odd crores, which is not for any identified asset. It is just an estimate that wave 3 creates the same degree of disruption as wave 2. We would see some increase in delinquency, especially from our earlier bucket. This is just to cover that. So it is purely an estimate like a contingency floating provision. That is the logic for this. So we looked at our deterioration. And as you would notice, obviously, in wave 2, the extent of deterioration was not as much as wave 1. Our ability is much better. So that's just a rough estimate that we've made.

But to your point, Mr. Subramanian, that we'll be able to write back if the trends are good. I mean there is no heightened delinquencies, we will be able to write back this provision. So it is more of a contingency engagement.

The next question is from Subramanian Iyer from Morgan Stanley.

It is actually a follow-up to the question just asked. Basically, if I look at the rate of the bad loan formation, It seems to have basically, say, kind of stagnated around that 10% annualized mark. So on my rough competition, it's approximately the next seepages for this quarter are about INR 600 crores, and that's been the number in the last 2 quarters also broadly. So when do you see this number actually coming on?

So I -- we're saying a majority of us [indiscernible] RBI RE book. We have written off almost 7 [indiscernible] charge-off of more than INR 200 crores [indiscernible] book. But quality of us incoming book in significantly better. And if you look at our gross [indiscernible] sequentially it's coming down. I think over the next 1 or 2 quarters, you would see that come back to the earlier level [indiscernible]

Understood. And Mr. Rao mentioned that about 70% of the RBI RE book is less than 30 days past due. So is that a part of Stage 2 or Stage 3?

It's stage 2.

The next question is from the line of Amit Nanavati from Nomura.

Question on MDR. So if you can broadly give some sense on broad categories where the industry has enjoyed higher MDR rate versus lower MDR rates, be it in terms of size of merchant online, offline or essential like utilities versus discretional, just broad category where the MDRs are much lower than the overall average MDR. That will helpful.

So we won't be able to comment on the MDR part, but I will tell you about the interchange that we received from the networks. Typically, there are 2 ways that they cut it. First is on the discretionary spends, typically, the interchange is higher. On the second way to look at it is on the premium products, the interchange is higher. So we get, for example, higher interchange on our [indiscernible] so it's because of the kind of category of card [indiscernible]. Some examples I can give you is that interchange on, for example, categories like consumer durable, apparel, jewelry would be higher. Categories like travel agent, hotels is higher. Restaurant is higher. Utilities is lower. Insurance payments would be lower. There's typically no interchange on some categories like fuel. So there are different categories in which they are broken up. Essentially, the principal remains the same. Discretionary, non-discretionary, premium versus non-premium.

So just to add to what Girish said and especially Dhaval had asked that question about reducing interchange compared to the previous period. A couple of things. One is, as Girish mentioned, that category wise interchange is different. So what has happened is when you're comparing to a pre-COVID period, the travel is yet to pick up so the interchange in that is higher. And so that is yet to pick up. So that has what has impacted the interchange. While the utility is [indiscernible] their share is higher. The second thing is the FX markup that we get in international travel that used to be high earlier. That segment is yet to pick up, and that's what has also impacted the overall interchange.

Got it. So broadly just in case, let's say, there is an MDR rationalization and this is more ticket-size focused or more essential category focused, is it fair to assume that the net impact for industry would be relatively much lower because we didn't retain much all the interchanges in which [indiscernible]

See, we won't be able to speculate on because idea is once we see the actual changes, what RBIs or any regulator proposers. However, at this stage, I must assume that the interchange on utility is quite -- is looked at the lower end of the sector, okay? So -- and there, the ticket sizes are also lower. Average ticket size on a credit card is various between INR 3,500 to INR 4,500 depending on the card size and other things. And those categories are primarily -- large ticket-size categories are consumer durables, jewelry, which are in any case, as I mentioned, higher interchange category. Lower the utility bills, telephone bills, those are the categories which are lower ticket size and there the interchange is already at a lower end.

[Operator Instructions] The next question is from the line of Prakhar Agarwal from Edelweiss.

Three sets of question. To start with, when I look at the 30-day spend activate, that number has supposedly gone up to around 52%. What would you attribute this to? And do you see this happening for the industry average or probably for us [indiscernible]

So 30-day spend active rate at 52% is good. We have seen that it is higher than the industry. That is what we get from Visa and Mastercard. There are primarily 2 reasons for it. The first is that it was a festival period as we have also invested into getting the customers to spend, a lot of offers have gone to the market. So that typically encourages a lot of these customers. We have seen that once customers start losing the cards, even if they will not use the card every month, but they start getting used to it. And you see a much higher rate on -- if I take a 90-day average kind of stuff. So the customer gets card getting into a habit of using the card and paying for the thing. So that is 1 reason. Our active rates are higher than the industry. And one other major reason for that is that we charge a fee for most of our cards at the point of sourcing, even though we will give the customer the same value back, once he pays us the fee, but not selling free [indiscernible] card is also another major contributor to having an active portfolio.

Okay. And any indication as to what industry would be working with 52% corresponding towards the industry [indiscernible]

Visa and Mastercard have always told us that we are higher in the industry average by close to 5% to 6%.

Perfect. Secondly, would this sort of trend that we probably are seeing at least on spend active rate. Do you see that over a period of time, that percolating into higher receivable mix or in terms of higher revolver mix, do you see that happening or it's too early to draw a trend over there?

So for a higher revolver mix, there are multiple things have to come together to happen there. One is, yes, you are right. Spend is the first important contributor because if the customer does not spend then revolving will not happen. Second thing is also about customers, the ability to pay customer, how is looking at, at that stage, the utilization on the card. There are multiple levers basis of which customers decide to revolve or not to revolve.

[Operator Instructions]

Okay. Can you hear me?

Yes. We can hear you, sir.

Okay. So as I was saying, so there are multiple first things. And [indiscernible] what is also happening is that we are seeing that a lot of customers are getting -- using their new spends and converting that into an installment-lending products. So if you look at it -- and as has been mentioned earlier in the opening remarks, the good part is like we -- our rate of revolver increase in absolute terms, revolver asset increase, was similar to the overall asset increase, which is very good. So that's -- and this is the trend which we have seen after October because of -- if you look at month-on-month, October actually went down and it is the recovery in the onwards December and it is looking like that. While the interest on installment-lending products is increasing, so as more discretionary spends have come in, high ticket-size spends are coming, which is more EMI conversion. So that rate has been much higher than the overall asset increase rate. So it's a good combination. It will settle up at some level, 27% is not the level, it obviously is going to go up as the things remain normalized, what level it settles, we will have to see. The second part is we also believe that the term increase lending products, term assets, that will also increase. So there are 2 levers which are playing there, not only 1.

[Operator Instructions] The next question is from the line of Ajit Kumar from AMBIT Capital.

Just 1 question. Your cost of fund has declined on Q-on-Q basis this quarter. And this decline in cost of funds has come after increase in last quarter. So any qualitative comment there on this trend, plus why has the cost of fund come down despite increase in budget as your borrowings have increased substantially in this quarter? And what can be the trajectory going forward as far as cost of funds is concerned. That's it.

So see, our cost to fund in the last quarter was mainly because of the year -- quarter-end averages of receivables. That's why it got impacted and showed a little bit higher. Our daily cost of fund has been running around the number of 5.4%, 5.5%. And that's what we've been reporting on a quarter-to-quarter basis. We do believe that at least for the next few months, a similar kind of cost of funds should continue because while the increase in borrowing is there. But fortunately, we've been able to borrow at quite competitive rates in the past, and we believe that at least in the near future, we will be able to borrow like that.

The next question is from the line of Bhavik Dave from Nippon India Mutual Fund.

A couple of questions. One is on your cost OpEx, where we see last time around, we gave some 900,000 cards -- 960,000 cards that we added. And this time around like you said 1 million cards. If you look at our OpEx on an absolute basis on the other OpEx side, which is around [ INR 200-odd crores ], which jumped to [ INR 250 crores to INR 260 crores ], just wanted to understand if you could give us some sense on what is the increase in that number that we're seeing? Is there any one-off due to season? If you could just highlight something on that would be hopeful. And number 2 is on your profitability on the spend that happened in a corporate versus retail, so corporate will have lower [indiscernible] as you understand. But will the profitability be higher as your cost of acquiring that customer spend is lower and also your interchanges are -- or your spend-based income to spend relatively higher. So on the profitability trend on the corporate business and the cost front. These are 2 questions.

So on the cost front, yes, you're right. If the number of accounts have increased so will the absolute cost of acquisition too will increase. The rate is more important so [Technical Difficulty]

[Operator Instructions] [Technical Difficulty] Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you.

Yes. Sorry, we got disconnected, right? What I was saying was, yes, the cost of acquisition has gone up as the number of accounts that we have sourced the more. The rate of acquisition, which is the cost of acquisition per account, that has remained the same. So it's more of an absolute amount what has come into the total cost. The other one is, yes, you're also right. The cost -- the spend-based cost has also gone up. One is because of the festive season that is there. So you must have seen there were cash backs being offered, et cetera. So that has come. The other thing that we see is that the spends are rising consistently. And we are also seeing that the customers are using the cards regularly. The reward point cost and the redemption of reward points is also coming back. So that we consider as a good cost that shows the engagement of customer is there. They are regularly using the card. They are utilizing the benefit associated with the card. So that is also there. The third thing is as the corporate spends rise. There are costs associated with them as well, which drives the long side. So that too has come. And that also leads me to the other question that you had, the profitability on the corporate card. The profitability on the corporate card is on the lower side compared to a retail card. This is more of what we call it a passthrough kind of business, wherein the corporate uses the card to get some amount of benefit instead of making a bank transfer. And similarly, our margins are also lower. But what we do is this gives us an entry point into the corporate account wherein the corporate customer initially uses it for utility payments and later on brings it as a T&E kind of usage to its own employees. There, the margin for us improves. But for any -- on the corporate side, this takes a while for it to build up and also because of the fact that these days travel is restricted, not many people are traveling. So that bid is yet to come. But what is happening is through a corporate card program, we are able to involve more and more corporates into the utility payments at this point of time. And then the T&E would follow at a later date.

Correct. Just sorry, 1 follow-up. On the cost front, this quarter like one of the participants mentioned that 60% is their cost-to-income stands. Historically it has been more [indiscernible], should we -- that the festive season behind should this trend move towards [indiscernible] for the coming quarters, is that a fair assumption to work with?

So I will not give a specific number, but in festive season, you look at our previous year's numbers as well every time during the festive season, the cost to income goes up because there are lots of cash back offers, et cetera. This will come down in the coming quarters.

[Operator Instructions] The next question is from the line of [ Harshvardhan Agrawal from IDFC AMC ]

Sir, just wanted to understand the total write-offs that you have done during the quarter?

Can you repeat? Write-off?

Yes. Write-off.

812.

Sorry, I didn't get that number.

It's 812. This includes accelerated write-off of INR 226 crores against which we are a cost funding provision release.

The next question is from the line of Shweta Daptardar from Prabhudas Lilladher.

Just your [indiscernible] mix on the percentage of overall [indiscernible] convert to 33% share. And we have [indiscernible] 1/3 mix for each and every component to directionally high on lending [indiscernible] happening.

See directionally, the way that we look at it is that RBI RE should come close to -- almost close to nil at this point of time. So it's 2% is left on. It started with 9%. So in few quarters, it's come to almost close to 0%. And we -- as was mentioned earlier, 70% of it is current so it should continue to come down as we go over because nothing is getting added to it. Our term balances are already at close to 34% -- 33%, 34%. So that should continue, as I was mentioning, there is a consumer behavior positive in that direction. Even though there are -- these balances are -- the term for these balances is lower, and there is a paydown which happens on these balances quite quickly. However, a lot of new demand is there, and we have seen a very strong demand in this, for example, in this festival season also leading to an asset increase in this term portfolio, that should go up. We also believe that our revolver, as was being mentioned earlier. At this point of time, it is basing almost at the same rate as our overall asset increase, so it's remained stable. However, in the month of October, it has come down. And then in November and December, because of the spend in October and November, we have added in absolute amount to the revolver and it's now at 27%, and we expect it to go up. By when and how much, we will have to see, but it does take 2, 3, 4 quarters for these new trends to start stabilizing and getting into the asset buildup as a customer. The transacting [indiscernible] come down even that the above 3 I have already given the expected direction.

The next question is from the line of Aakriti Kakkar from Goldman Sachs.

So I have 1 question on the competition front. So there has been announcement about other banks getting into various partnerships mainly with [indiscernible] What is your strategy in this front?

Can you just repeat the question? Your voice is not clear.

Yes, sorry. Is it better now?

Yes.

Yes. So there has been a lot of announcements about other traditional banks, other credit card issuers getting into partnerships with Fintech to issue credit cards. And we have been seeing an uptick in the traction on that front. So what is your strategy on that? Also do you see any competition [indiscernible]?

I mean we don't know. We can't comment on this strategy, whether we -- I mean, a new NBFC, or new bank, which was not into credit card play, but suddenly having a tie-up with Fintech, et cetera, for issuing the credit cards, whether they fully understand the ramifications [indiscernible] we don't know. But we continue to have partnerships. We have a lot of banks with whom we have partners, we have issued co-branded cards, et cetera. The transparency in there and the scalability is proven. And of course, the entire industry is on our side, only the marketing cost is only done by the entity at the bank [indiscernible] I think this impending the digital lending kind of discussion paper it was based, and if we can take some shape by way of some [indiscernible], et cetera, then more clarity will be there. People will understand what is the additional compliances they will have to do. So that may change the game slightly.

I have one more question, if I may. It is a little open-ended, but would be great if you can give us some direction in terms of how you're thinking about the business. Sir, if needs to choice between growth and profitability, what would be your choice, which is the more important metric. Growth or profitability?

As a large player and as a regulated entity also, we don't have the choice of only picking 1. So I think we have to marry both. So that way, the philosophy that we got has always been making sustainable growth. Not pursuing one at the cost of other. So [indiscernible] obviously triggers a lot of effort in terms of identifying the customer segment very, very clearly, engaging with them, offering the right product, offering right value proposition to them so that they will continue to engage with this. But the strategy is always a sustainable growth.

The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.

Sir, trying to understand, how you think about penetration in the salaried segment in the [indiscernible] channel. So what is the potential there? And what are you offered by the bank, it can [indiscernible] about that.

Yes. Okay. See the way we look at the potential over there, there are anywhere between INR 430 million to INR 450 million or INR 43 crores odds customers at the top of the funnel. We exclude [indiscernible] we would exclude the degree of dormant in active accounts. We would exclude some of the rural areas and geographies where we won't issue cards. So it's an estimate of the eligible population, which is around INR 200 million or INR 20 crores. Within that, we have issued about 6 million cards at this point of time, which means the balance remains an opportunity, both from the asset customers of SBI and the lability customers of SBI and then also the partner banks where these arrangements exist. So that is a huge potential in terms of issuing cards. And to preempt a question saying when a lot of cards can be issued in a short period of time. The answer would have been, yes, but for the fact that they need to be profitable, they need to be spending on the card. And accordingly, they need to be picked up prudently. And they are picked up in different phases or programs so that we can continue to monitor these metrics which determine how this program needs to move forward. And so we run this program called [indiscernible] in multiple waves and we booked a large number of cards under this particular program. So that is where the total potential is in the current penetration and there's a lot that more can be penetrated over there, and that program will continue to evolve with more digitalization being brought in.

The next question is from the line of Deepak Gupta from Reliance Nippon Life Insurance.

Just wanted to understand on Stage 2 asset quality, while it has improved quarter-on-quarter, it still remains on an elevated [indiscernible]. If you could give us some qualitative aspects on the Stage 2 loans and whatever thoughts of how that will play out in the next few quarters?

So if you look at the -- like we mentioned earlier, the asset quality even at a total gross prime cost basis, we've improving trend, okay? Quarter-on-quarter [indiscernible] the other thing that we said, a large part of our [indiscernible] has been either written-off or has run-off. The big RBIs [indiscernible] that we were talking about and I think it was close to 9%. We are now [indiscernible] and just 2% of the book being of RBI RE. Otherwise also in terms of the distribution of Stage 2, even quarter-on-quarter, the total number has come down from 11.2% down to 9.4%. So you have to look at [indiscernible] metric, okay? Overall, if you look at our asset growth from last quarter to this quarter, it has gone up by almost INR 3,000 crores. And majority of the increase is now sitting in Stage 1, even Stage 2 has topped it. So incrementally whatever business we are booking and the new EMEA that we are building up is sitting in Stage 1. So that's the reason why we see that the credit cost has started to come down. And the trend will continue.

The next question is from the line of Gaurav Kochar from Mirae Asset.

Just extension to the question asked earlier on revolvers. Currently, the revolver book is around 27%, whereas if I look at earlier, used to be 3, 4 percentage points higher. So just wanted your thoughts around -- and given that you've been seeing that incrementally the quality of the book is better. Where do you see the revolvers trending over the next 1 year? And just as a rough cut form of estimate, for every 1% increase in revolver rate, what is the net-net impact on ROA over the years? I mean you can take some historical sort of maybe steady state pre-COVID years. What was the contribution of that additional 1% at a net level on the ROA? If anything you can qualitatively?

The first question related to whether the revolver percentage would go up. Like we stated earlier, 27% seems to be on the lower end now. And in the last 2 quarters, if you see, this would -- this seems to have bottomed out because we were at 27% in September and now in December as well. And as [indiscernible] stated, we actually saw a little bit of drop within the months in the quarter in October, it actually went down a bit more. And then gradually started coming back from November and December. And both November, December were better and finally we ended up at 27%. That did impact the yield that we had for the quarter, although there was a marginal drop, but there was a drop because of the drop in October month. As far as the impact on the ROA is concerned, so you can calculate it. You take the total asset that we have and have 1% of that minus the cost. That's the straight income that you have to the ROA side, barring some amount of losses that we'll have to bear because there is no extra expense. There are only 2 costs which comes, one is the cost and a little bit of on the credit cost side.

Okay. Just to frame this a bit differently. If we reach the revolver rate pre-COVID, [indiscernible] do you expect similar ROAs going ahead?

Similar ROA, meaning what we used to get in the past, pre-COVID?

Yes, sir, pre-COVID ROA. [indiscernible] if the revolver rate goes to 30%, 31%, which was the case earlier pre-COVID. Can we expect similar ROAs pre-COVID?

So I'll not give any specific numbers, but like I said, see, in the ROA side, the moment the interest-bearing asset goes up, the returns would definitely go much higher. You see, even right now, you look at it, when we have a 27% revolver book, we still are -- we still delivered a 5% ROA. Now this has an impact of credit cost of the previous period coming into it. If the credit cost itself was normalized and we still have a similar kind of returns, even at 27%, you'll find that our returns would go up. So by the same logic, I'll add a little bit more of interest income, the ROA would still -- would go further up. That's where I would like to leave it. I wouldn't want to give any specific numbers on that.

Sure, sure. That's helpful. And just lastly, if I can squeeze in. Any reversal -- interest reversals during the quarter? If yes, any quantum that you can disclose?

So nothing as such because, see, in the normal course, the way we do our Ind AS accounting anything that we provide for -- to the extent the provision is made for 90-plus assets, we reserve the interest, and that's a consistent and standard accounting policy that we follow. So if something has been provided the 100%, we don't book any interest income for it.

Ladies and gentlemen, we will take the last question from the line of Rohan Mandora from Equirus.

I just wanted a basic understanding from you in case we have any representation to RBI [indiscernible], and if yes, what was that? And secondly, if you could quantify the spends on -- quantify the expenses on spend towards rewards and [indiscernible]

What was the first question? Can you repeat?

In case like what I understand is, sir, in the previous cycle of 2016, When RBI was contemplating reduction on interchange [indiscernible] payments there was some [indiscernible] that was made credit card issuers on [indiscernible] card. So has that been a similar representation being made this time to RBI? And if yes, if you could discuss what was the thought process that you have shared on the digital payments, the discussion paper?

Yes. To the question on MDR, see first of all, this is basically an announcement to RBI in the month of December as part of the monetary policy guidance where they will be coming over with the discussion paper in a month's time. That is what [indiscernible] from RBI says. So the discussion paper or the consultation paper is yet to be out. It's not released by RBI at least as of yesterday. It's not [indiscernible], but the moment...

So any input from our side, if it goes -- will go after the decision be paid out. Would that be a fair way to look at it? Or is it something that we may provide before internal discussion with RBI?

I can see. They have not reached out. That is a fact. But nothing [indiscernible]. The moment the discussion paper is there and then if they touch upon anything to do with the credit card, definitely, there have been some opportunities for the entire industry, including SBI Card to represent the matter for a favorable consideration. That opportunity will always be there.

Sure, sure. And sir, if you can quantify the expenses towards the spend base items. OpEx -- the [indiscernible] OpEx toward spends.

Are you looking at the total spend base or I thought you were asking about the reward point cost.

No, no. [indiscernible] linked spends and corporate linked spends in the part of the absolute quantification including share?

Corporate suffice to say the investment margin is very low, quite a lot of the interchange that we earn, we pass it on. We don't see as a very very profitable business, but it is a positive return business and high return on asset business because there is no asset that is also [indiscernible]. And that is what current model is because the T&E is yet to come back. So it's more of a utility payment, which is more of a [indiscernible]. However, once the T&E comes back, the return improves and improves quite substantially.

And on the festive spends, any quantification on that?

So that's [indiscernible] one specifically because that's more of a proprietary information. We wouldn't like to comment on exactly how much we spend because this is very very specific to us. And depending on the festive campaign and depending on the partner that we're doing, we do these necessary tweaks into our business model and to [indiscernible]. So that one we would like to refrain from answering right now.

Ladies and gentlemen, we will take that as a 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, Faizan. I will sum it up in 3, 4 lines. Like Q3 FY'22 witnessed a significant improvement in customer confidence and improved consumption levels. The assets reflected powerful results that [indiscernible] delivered during the quarter and [indiscernible]. We remain optimistic that the overall onground situation will begin to stabilize over the next few months. The sooner we are out of this layer, the better it is for us as we can then continue our journey back to the [indiscernible] that we set for the economy before COVID-19 [indiscernible]. Meanwhile, as I said earlier, we will continue to pursue sustainable growth and following healthy financial and corporate governance [indiscernible], which form our core strength. So before I conclude, I will urge each one of you to take all precautions to stay away from COVID-19 and stay safe. Once again, a very happy New Year, and thanks to 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.