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 Q4 FY '2023 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, MD and CEO, SBI Card. Thank you, and over to you, sir.

Thank you, [indiscernible]. Good evening, everyone. I am pleased to welcome you to the Q4 and the FY '23 earnings call. I really appreciate your presence today. As you would know, while global economy remains uncertain due to many factors including geopolitical one still persisting, it seems to be inching towards improving with IMF predicting the growth rate bottoming out in 2023 to 2.8% before rising to 3% in [2024]. Amid this, economic activity in India remains resilient. The real GDP growth is expected to be 7% in [ '23 '24 ] [indiscernible]. Both EMI manufacturing and EMI services remained robust in March '23 at 56.4% and 57.8%, respectively. Aggregate demand conditions remain to resilient in Q4. According RBI's recent consumer confidence survey, consumer confidence continues to improve. Most importantly, the survey showed that household spending was buoyant on the back of higher essential and a non-essential spending and more than 1/3 of the households expect a rise in non-essential outlay over the next year. This is a good thing for consumer demand and industry management. Apart from which comparative economic resilience during this times, India is also being raised as a front runner when it comes to digital payments. This is true when we look at assets like investment in payments, base of corruption among population and the vast user base. According to a recent industry report, India's digital payments market will increase from $3 trillion to $10 trillion by year 2023. Credit cards too continue to rise this digital payments growth rate. Credit card base grew from $73 million in March '22 to over $85 million in March '23. It is despite the [indiscernible] approved around 1 million inactive cards by the industry. Card spends have also increased significantly by 28% from 1.07 lakh crores in March '22 to INR 1.37 lakh crores in March '23, the highest turn around market impact for the industry. Card spends continue to remain over INR 1 lakh crore. For last 13 months in e-commerce contributing to a significant share in the prices. It is interesting to note that in FY '23, the industry saw highest ever annual Card spends at INR 14 lakh crores plus. In FY '23, the industry saw the highest customer [indiscernible] during October at INR 1.29 lakh crores and a strong winter targeted season added to increase travel spend [indiscernible]. This clearly demonstrates the robustness of the demand and the usage for credit cards. In fact, the past year has been a favorable year for the industry with many significant changes to the business model that have set the tone for future of Credit card industry. The industry has largely adjusted to an incorporated deal in a seamless manner during the past 6 months and is now ready for the next level of growth. I would like to reiterate my confidence [indiscernible] Credit card market protection, a significantly underpenetrated market offers and to grow opportunities for all the customers. Let's now look at the SBI cards business overview in FY '23. I am proud to say that SBI cards were successfully able to navigate through the year and registered a robust business to performance, demonstrating the resilient and sustainable business model that we have been over the years. As always, we continue to create value for our stakeholders. And I'm pleased to share that we declared an interim dividend of INR 2.5 per equity share for FY '23 in the month of March. Throughout the year, we put focus, efforts on 3 aspects strengthening acquisition channels and acquisition quality, enhancing sustainability of the business and ensuring an engaged and active customer base. As a result, during the course, we have achieved some new benchmarks. We added 5,200 or 5.2 million. Total accounts in FY '23, which has been the highest ever during the rate. In FY '23, our new accounts grew by above 46%. During Q4, we added 13.71 lakh new accounts at a growth rate of 57% year-on-year. We continue to focus on adding about 900,000 to 1 million cards per quarter on debt basis, and in line, we have added 900,000 cards in Q4. Our cost input stood at INR 1.68 crores in Q4 FY '23. We continue to be the second largest Credit card issuer in the country, and our cost outstanding in terms of cost outstanding market share improved by 100 basis points to 19.7% during the spends [indiscernible]. Our spends have also seen new highs in FY '23. SBI Card saw the highest retail in FY '22 at over INR 2 lakh crores, which is a 41% increase over FY'22. Our cost spend to Q4 stood at INR 71,686 crores with a 32% year-on-year growth, and this is the best ever quarter in [indiscernible]. Out of the [indiscernible] contributed over INR 55,500 crores with 33% year-on-year growth in Q4 FY '23. Again the best quarter for [indiscernible]. It is not perceived that our retail spend per a card has also increased by 7% year-on-year in Q4 FY '23. On that note, I'm pleased to share that we are #2 positioned in the spend market share. During Q4, FY '23 ,thanks to quarter-on-quarter basis has been driven by growth in categories with department stores, health, utilities, education, consumer durables, furnishing and hardware, et cetera. Travel, entertainment and restaurant category also saw good growth. In fact, Q4 FY '23 has been the first quarter in the last 3 years to support the traveled spend momentum in Q4 FY '23. [indiscernible] continue to grow in FY '23, reaching a 56.9% share of 1000 participants. Our continued robust gives momentum also helps us register get financial in FY '23. Let me share some key ones. Our quarter revenue to date to INR 14,286 crores and has grown at 23% year-on-year for the year FY '23. Our revenue from operations has seen 28% year-on-year growth in FY '23. Our receivables continue to increase steadily. Receivables at INR 40,724 crores have grown by 30% [indiscernible] as compared to [ INR 13,381 ] crores in March '23. A share of interest earning effects has improved to 61% in March '23 compared to 59% in March '22. In FY '23 the SBI card has achieved a [pack house] INR 2,258 crores registering a significant 40% growth over FY '23. SBI card undertook some significant initiatives on the product side during FY '23. We further expanded our core card portfolio. And added [indiscernible] since this launch, the card has been very impressive response of the consumers. We launched a new co-branded card, [indiscernible] partnership with [indiscernible]. We have been working on several initiatives in strengthening our acquisition channel and enhancing customer experience. Technology has been playing an important role as we bring these 2 closer. I'm talking about ASP part print rollout. ASP part is an end-to-end [indiscernible] channel and has been a significant initiative to be launched during the year, which has made enrollment by customers easier, [indiscernible], faster and instant. This allows the customers to get a card in just 5 to 7 days. [indiscernible] we have lost recovery initiatives to evict the KG process across the customer journey to enhance security and timing needs for our customers. Multiple malls biometer TPP, disaster, media dam, et cetera, our newer customer needs. It is most pertain of the efforts are helping us in rationalizing the cost affinition, opening the business fundamentals. We are excited with the opportunities on the increase of rotator with the API. Access to the large merchant and hence customer base, we put some industry players, we plan to roll out the [indiscernible] over the next few months. Speaking of dividend liability, it is important to note that higher customer spend active rate is vital. And the [indiscernible] part, our spend tax rates have obviously been 50%, including in FY '23. We continue to have a good strength and highly capable senior management team to lead the company towards new [indiscernible] growth ratings. I'm proud to share that this year, too, all round efforts have been duly recognised, ASP part has earned in its prestigious recognition in different areas. For instance, [indiscernible] TV awards for customer service and holding [indiscernible] National Training Award for Excellence in training and development initiatives. Coming to the financial performance in Q4 FY '23. Our growth of revenue in Q4 has been at INR 3,917 crores, registering a growth of 30% rate year-on-year. In Q4, our revenues from operations have been net INR 3,762 crores with 32% [indiscernible] crores. In Q4 FY '23, our tax grew at INR 596 crores in 33% year-on-year increase and 17% quarter-on-quarter sequentially. In FY '23, as expected, owing to continued interest rate increases, our cost of funds has also weakness to significantly increase. As we communicated last quarter, our cost has increased by 13 basis points in Q4 over Q3. We were able to minimally impact our NIM and our NIM for Q4 is only 5 basis points more at 11.5%. Our cost to income for FY '23 was at 58.9%. We saw an improvement in cost-to-income ratio to 58.1% versus 61.9% in Q3 FY '23 [indiscernible] related expenses being lower this quarter. On asset quality, our NPA increased marginally in Q4. GNPA stood at 2.35% as of Q4 FY '23. Our gross credit cost decreased to 6.3% in Q4. We revised the model estimates this quarter, goods and I am talking about [NPA] model. We revised the [NPA] model estimates this quarter, which is use onetime impact of 20 basis points on temporary cost. Assisted project, our gross credit would be in the range that we have shared our way 5.6% plus 13.2%. We have identified an [indiscernible] from the [indiscernible] portfolio that has contributed to higher [indiscernible] in last few quarters, impacting the NPA and the write-up numbers. We have taken portfolio actions and expected that with actions taken, we will be able to add up ratio. The U.S. division from [indiscernible] detail onwards beginning as the expectation in comes update. Our profitability ratio also continues to improve. In FY '23, our return on average asset increased to 5.6% versus 5.4% in FY '23. In Q4 FY '23, it has been at 5.4%. During the year, our return on average has also seen an increase, reaching 25.3% versus 22.8% in FY '22. In Q4, [indiscernible] has been 24.6%. In conclusion, India is resilient and the domestic consumption drilling sectors. At SBI cards, as always, we have maintained that our main approach and [indiscernible] measures to ensure that the company remains on sustainable and profitable growth path. Interest rates related, however, this has been factored in under likely [indiscernible] such growth momentum and most to keep policy measures to now largely in place, the credit card industry is likely to give a sustained growth momentum. I would also like to share that this year SBI card was celebrating 25-year [indiscernible]. We look forward to celebrating this with all of our stakeholders. While we look at the last 25 years units, we believe that the future is much more promising. So now we are open for the questions.

[Operator Instructions] We have a first question from the line of Mahrukh Adajania from Nuvuma.

My first question is on credit cost. You already seen that there was a onetime impact of change in ECL assumption, so if you could elaborate on the change and also in general for the industry result rates have come down a lot post COVID. So why are credit costs still sticky? Is this goal for them to come down because regular are declining so much, then credit cost should also be lower as the general trend.

I think this is a onetime adjustment an impact of 20 basis points is in terms of strengthening the ECL model, we test the model and based on the current economic factors, macroeconomic factors, we also modified the model has reentered around INR 20 crores kind of impact in the quarter. The annual returns out around 20 basis points. In fact, if you adjust the credit cost for the 20 basis points, it's around 6.1%, which is just higher in the spectrum, what we have given. I talked about the gross range of 5.8% to 6.2% credit cost, which takes into account the current composition of the asset, the current share of revolver, transactors, [indiscernible] by loans, current economic conditions and the kind of environment in which we are operating and the [indiscernible]. So we are at the higher end of the section. As I completed earlier, we have taken -- we have identified the segment very clearly. We have been taking portfolio action. We are expecting that credit card credit cost will have the trajectory of coming down in the next 2 quarters. It will come down.

We have a next question from the line of Karthik Chellappa from Indus Capital Advisors, Hong Kong Limited.

Two questions from my side, sir. So over the last few quarters, we have seen a very good recovery in our card volume share, which is at about 19.7%. But if I look at the difference between our card volume share and expense share, which is almost close to 1.5% now, that's almost at 9 to 10 quarter high. So given that we really good momentum on the volume side. Why is it not reflecting the spend yet? Is it a reflection of the quality of customers that we are getting either geography-wise or self-employment or a salary-wise. And at what point of time do you take this different [indiscernible] stock.

I will respond to your query and Girish also can supplement, one thing you know the [indiscernible] companies both retail and the corporate expenses. So we have seen the kind of volatility in the market share in terms of the spend, from a corporate perspective, move from [indiscernible]. So being mindful of this and also be mindful of the fact that it's only topline, it doesn't add much to the bottom line, but it can potentially it. We've been playing a very calibrated games here. That's the reason our cost rate for spend actually [indiscernible] ranges 22% to 25% of our overall expense. But with regards to reissuing, we also commented about the robustness in the volume. As you know, it takes some time for the customers to start using the limit fully, they may start with the smaller transaction to begin with. But the moment they experience benefits of using card, they may start using it for discretionary spends, et cetera, and then you can see a large-figure transaction. As you said, the volumes have come only post COVID after 2020. I think there is a catch-up here in terms of being equal to portfolio, it'll take time for the new [weekdays]. Anything you want to add, Girish?

Karthik, in the new customer acquisition that we are doing, these days because of the RBI guidelines, you have to keep the customer active. If say the customer is inactive for more than 12 months, in any case, the customer gets [indiscernible] of your portfolio. So what we are seeing is that all the new customers that we are getting their average spend actually is coming out quite better and higher than the earlier vintages that we are getting at the same point of time. So which is a good sign. The second thing, which is also visible in the portfolio is that these customers are -- their active rates are also higher in terms of, let's say, 2-month, 3-month, 4-month active. So they are also higher. So we don't see any issue there. As sir was mentioning, the issue on the market share primarily is because of the mix that we are targeting of retail versus corporate spend. So there will be some times which we'll target a higher corporate versus retail mix. So it will -- the shares will look very, very different. Then we check because there are other sources through which we check, we see that average retail spend of ours is similar to the industry.

If you want me just add, even on the Slide #8 in the debt, you will see that our quarter for FY '22 retail spend for average card was 124,000 and it's gone up to 136,000 per quarter for FY '23. So there is an increase that you can see already in the retail spend per average cost. And since a lot of [ sourcing ] for us has happened in the last 1.5 to 2 years, there is a bit of catch-up as well which is not reflecting, but already we're seeing the benefit of the spend going up in metric on spends for metrics [indiscernible].

Got it. That's very useful. And my second question is basically on the new RBI direction on pre-sanction credit lines through banks using UPI, although the details are yet to be unveiled, is there any thought process on how it's going to be impacting credit cards?

So as you rightly said that there are guidelines still fully yet to come, but these kind of products are already available. So people were already hearing because UPI is -- in a way, if you see for a debit card to make a transaction online, that model is there. And only limit on the bank account or debit cards are always there. So we will also see as to how it goes further, but this is just a different version of the earlier product, which was available.

[Operator Instructions] We have a next question from the line of Rohan Mandora from Equirus Securities.

To understand the major slippages that have happened in this quarter. What is the vintage of the customer? And is it coming from salaried or self-employed some kind of both? Second is that, if you look at the originations, they have picked up in a self-employed category in the last 2 or 3 quarters. So if you can touch upon what is the customer profile of these customers? And what is the origination channel for this? And lastly, if you could share some guidance on NIMs and cost of funds for FY '24?

I think with regard to the vintage, we see as I clarified in my speech as well, the new vintages are holding good in terms of what our expectations we had in terms of the very broad delinquency brand and ECL kind of consumption, we are behaving normally [indiscernible] sure of that. But in the legacy vintages, we identified a small customer base, which was showing the higher delinquency. Obviously, that was resulting in flow rates and the higher NPA leading to higher write-off. This segment was identified. There is nothing can be pointed out, which is all across in terms of geographies and the nature. So we are taking portfolio actions that are required. So we are confident that actually as the retail for the recent vintages increases and as we have the actions taken on the segment shows the results, actually the credit cards will trend here. With regard to cost of funds, I will ask Rashmi to comment.

So on the cost of funds, we saw both the actions taken in quarter 3, which obviously resulted in the cost of funds going up in quarter 4. There has been one more action by RBI, which is a 25 basis point increase in February. On account of that, we do expect that the cost of funds for quarter 1 FY '24 would be higher by about 10 to 15 basis points. It seems from the statement that RBI has made so far, they did mention, the [indiscernible] mentioned, I would not expect any further rate hike from the RBI. If that is the case, I would expect that the cost of funds to stabilize for quarter 2 and maybe start to inch down in the second half of the year. And on the NIM, therefore, the corresponding impact will be that while we've been able to maintain the NIMs in quarter 4, very margin [indiscernible] from quarter 3, we do expect the need to stabilize over quarter 1 and quarter 2 and any benefit coming from the cost of funds and also any actions that we have been taking which we took in quarter 4 will be taking further in quarter 1 or the customer [indiscernible] will help us [ strengthen ] the NIM till the second half.

Sure. So just on a follow-up on the first reply. The earlier vintage customers where we're seeing delinquencies. Are these prepandemic originations, just to confirm? And also on the self-employed originations, if you can just touch upon. That question is pending.

Yes, the portfolio that Mr. Rao mentioned, is a pre-pandemic portfolio. It's a subsegment or one segment that you're [ amplifying ] which was originated prepandemic. I think your question was about self-employed. The answer is a mix of self-employed salaries. But we've taken other funding -- portfolio action based on whatever further of segmentation that we can do.

We have our next question from the line of Bhavik Dave from Nippon.

Sir, 2 questions. One is on your cost of acquisition in the sense that when you see incremental cards that we are adding in the last 4, 5 quarters, you've been adding cards, the Tier 3+ in Tier 3, Tier 4 regions. Just wanted to understand if the cost of acquisition to be similar when we do mutual acquisitions versus Tier 3, Tier 4 acquisitions. That is point number one. Point number 2, when we see quarter-to-quarter, the operating expenses are falling that you've seen last year same time. What would be the logic or what has led to this cost of other operating expenses being flat within that the fees and commissions have increased like 10% quarter-on-quarter. Just want to understand what exactly is happening there. And to that, I just want to understand, going ahead, and operating expenses come out lower as a percentage of our income considering we are doing this online channel that we opened up incrementally. So just want to get a hint on that.

So cost of acquisition on a year-on-year basis, we have seen a downward trend. It's is actually 10% plus downward trend that we have seen in the cost of acquisition. We -- because you mentioned metro versus Tier 3, Tier 4. We do not look at it from that perspective, but we can tell you that Banca cost per acquisition is lower than open market cost of acquisition. And for that sort of reasons that in the Banca scenario, there is a kind of leads, which is available for the [indiscernible]. Apart from this, there is a constant effort on the digital side of things to bring the cost of acquisition down as going further, as we go more digital and as we -- and as we mentioned that we have launched the SPRINT journey, which where you can get the card within 5 to 6 minutes in your hand. As more number of customers pass through that and we are able to generate more volumes there, the cost of acquisition will further trend downwards in the direction.

And I think your second part of the question was that the operating costs have been flattish quarter-on-quarter. Is that what you're asking?

Yes. And last year, same time, third to fourth quarter, [indiscernible]. I just wanted to end up, if you see this quarter versus last, the number of cards that we added, the gross additions were lower, right, like 1 million was 900,000 cards this quarter. Just want to understand like why are we seeing like the cost of -- sorry, other expenses going down quarter-on-quarter?

So the reason for these cost to be flattish quarter-on-quarter between quarter 3 and quarter 4 are certain IT expenses that we've done, certain projects that we have started in quarter 4, and the cost of that has come in. So while you're right that the cost -- and as you should explain in the cost of acquisition quarter-on-quarter been coming down, the overall operating cost is higher due to certain project costs taken up in quarter 4.

Sure. And this will now -- cost of acquisition going down should benefit us in FY '24, right? It costs should not accept that rewards and promotional expenses that we do expect that to the other part of the cost structure should like trend flattish or lower, right? Is that a fair assumption?

On a quarter-on-quarter basis, there can be some variation because in our model of acquisition, we acquired through digital and the cost is very low. But otherwise, if you go through manpower there is a set of fixed cost and then there is sort of variable costs. And there is usually some amount of variation and that happens on a quarter-to-quarter on a month-to-month basis. But on an annualized basis, we will be trending down.

Sure. And last question. How much is the SPRINT journey contributing to a 900,000 cards? And how is it trending? That's the last question.

As of now, SPRINT does not contribute much large percentage into it. It's a very small percentage. The reason primarily is that as of now, we have kept it only for purely digital and for cash back card customers in that sense. We are slowly integrating it with our partners. So as of now, the process of integrating it with our co-brand partners is on. One is already done. The other partners are in progress. We also want to integrate the SPRINT journey with our Banca -- with the Banca along with our Internet banking. So these are the things which is in progress. So once that happens, more number of customers certainly can express and use the SPRINT journey on a regular basis. So we expect this to rise rapidly now that we have tested that it works absolutely fine and the customer can be given a card within 5 minutes.

We have a next question from the line of Bhavesh Kanani from ASK Investment Managers. Since there is no response, we'll move on to the next question from the line of Alpesh Mehta from IIFL AMC.

Sir, 2 questions. First is on the yield on loans. We are seeing a sequential improvement in the [indiscernible]. So what has been the increase in the personal loan segment...

Alpesh, I cannot hear you properly.

Can you hear me now?

Yes.

Since there is no response, we'll move on to the next question from the line of Shubhranshu Mishra from PhillipCapital.

Two questions. One is given the fact that the revolver are still -- I mean what are the new revenue line items that we are looking at or we want to develop? That's the first. Second is, what is the margin contribution difference between retail spend and corporate spend?

You have to repeat the first question, Shubhranshu. We got the second one. What was the first one?

So given the fact that revolver as a proportionate has lowered or a range count, so the interest income was therefore getting mitigated. So what are the new revenue line items we are looking at or focusing on, which can be incremental to the top line results?

I think revolver is steady. What are the other line items -- revenue line items to enhance the revenue?

I think we have stated in the past that we will be looking at the revenue optimization through the process. We have various products like Encash, Flexipay, Balance Transfer and other stuff. Now these products are there. We are -- of course, we are also adopting a risk-based pricing to be more competitive also in the market to -- and we are also looking at it, like what are the other risk mitigants that are available to expand our base that is visible for availing these products. So that way we have steadily increased the share of the interest-bearing [ NEA ]. If you look at overall revolver plus CMI, it has increased by 2 percentage points over a year's time. So this endeavor will continue. But of course, we will also be looking at the fee income, what are all the other ways and means of supplementing some of the revenue lines that got evaporated particularly after the -- some changes that have come into effect from 1st of October. We didn't notify the market and the stakeholders. We have introduced 2 types of fees. So we will continue to look for the kind of avenues to augment our current suite. Margin contribution [indiscernible].

The second question is the margin contribution in retail spend and the corporate spend.

So on the corporate spend, the margin contribution is very minimal, because whatever we earn as primarily interchange gets passed back to the customer in the form of a passback or an offer. So on the corporate side, the contribution is fairly minimal. On the retail side, while we get interchange, but we have to give customer reward points. So there is an element there. And we also give up to 52 days of credit-free period. So these are the 2 major things. After that, there is a margin which is still left. We also make money from fee and charges also from interest income, so there are multiple other sources in the retail scenario, whereas in case of corporate, because it is customer base 100%, there is no interest income.

If I can sneak in one last question. What kind of spend growth are we looking at in '24 and '25?

So as per industry sources, we believe that the spend should grow anywhere between 22% to 25%. We will try and keep an alpha on top of the industry methods.

We have our next question from the line of Alpesh Mehta from IIFL AMC.

Am I audible now?

Yes.

Okay. Just 2 questions, sir. Firstly, on a sequential basis, we have seen around 30, 40 basis points improvement in the yield. So what kind of pricing action you would have taken on to the EMI segment because the mix is largely stable on a Q-o-Q basis?

I think as we have said in the past, we adopt a kind of risk-based pricing, which permits like -- for example, transmission of the rate, whenever the funding cost increases or whenever the other costs increase, we also can transmit back to the customers. So that is the strategy that was adopted last quarter when we revised the prices for some of these loan products. I talked about Encash, talked about Flexipay out and other loans. So we were able to successfully transmit that rate for the new disbursements, because unlike kind of others in the industry, where the entire portfolio gets reset because they lead to the actual benchmark, in our case, mostly, the loans carried fixed rate. So the opportunity to transmit a rate is only based on new divestments, which we were able to do successfully last quarter.

Okay. And there is no change onto the revolve yields, right? Revolve yields remains the same. Because I believe you would be at the...

There is no change in the APR. Revolver remains same, and the share in the overall asset also remains same. So obviously, there's no change in the revolver contribution.

Perfect. And just the last one, if you can throw some light onto the instance-based fees and the others because that contribution has gone up sequentially. So any major line item that would have contributed more in this quarter.

Yes. The instant-based fee was higher, largely because we -- if you recall, we reduced the fee on the rentals, and we also increased that fee from INR 99 to INR 199 in the month of [indiscernible]. And of course, the impact of that increase is the minimal given that the number of days that it was [indiscernible], but significant portion of that increase has come from the rental fee. There are other elements as well, but this was a major contributor.

Perfect. And lastly, the 20%, 25% increase into the spend growth that you are factoring in, that does not include -- does that include any action on the rental payment side as well?

Sorry, the 20%, 25%?

Growth onto the spend side that the industry is expecting, since now on the rental, there are no rewards, and the -- some fees are also introduced from that. So do you expect that to be stable or that could be -- that could see some drop in the spend growth?

No, should not. Because in between Q3 to Q4, as Rashmi was mentioning, in Q3 -- mid of Q3, we levied INR 99 as a fee. And in March, we increased it to INR 199. We have not seen any drop on a month-on-month basis from Q3 to Q4 on the rental spend. So while absolute growth might not be similar to industry-level growth, but it will still remain stable or marginally.

We have our next question from the line of Anand Dama from Emkay Global.

So firstly, on the NPS front, so -- which have gone up quarter-on-quarter and also have gone up, but just said that [ still provisions hasn't gone ]. But just wanted to check like whether these NPAs have come or the stress has come primarily from being monitored, but identified stress pool, or this was all of a surprise that basically changed during the first quarter. And if you have the -- typically do the exercise of identifying the stress, then is there any pool that you can talk about that you identified [indiscernible].

I think you'll have to repeat the question. Most part of it was [indiscernible].

So basically, sir, one is that the NPA flow that you saw during the current quarter was -- is basically out of the identified stress pool, or basically, this was all of a surprise that we saw in the fourth quarter.

The question is that the NPA increase that you've seen, is it largely from the identified stress pool that we called out? Or is it across [indiscernible]?

No, I talked about the small segment having a higher delinquency. It means like you expect a kind of contribution on the legacy portfolio, some new vintages, everything. But this segment, what we identified has higher problems to deliver it. And because we have seen the recovery efficiency or collection efficiency in this segment. We noticed there is actually a stress test. That was the reason we have taken some portfolio actions there in terms of minimizing the cross-sell or not offering the cross-sell and other portfolio actions that are available, we have -- we've taken a few and some more are on the angle. But again, at the cost of repetition, the latest vintage is behaving exactly as per our expectation. So we expect that these actions will eventually result in a tighter, lower credit cost over a period of a couple of quarters.

Okay. But going forward, like running into the first quarter, do we have any kind of stress that you identified already? And if yes, if you can quantify that.

Quantify for the next quarter.

I think, as I said, it's a work in progress, but some of these things will also take time. While we are very confident that it will have a downward trajectory, I think the bottom will be a kind of stabilization period before it actually starts evidencing kind of a real drop in the rate. But of course, this onetime trend, obviously, what happened is not expected to repeat in the next couple of quarters because it's purely a modem-related adjustment. So we are confident that the overall trade cost will -- maybe it will not cross other than whatever we have given, [ that confidence we have ], but actions would take time. But over a couple of quarters, definitely, it will come down.

We have our next question from the line of M.B. Mahesh from Kotak Securities.

2 data-keeping questions and 1 qualitative question. The first is on -- to Rashmi, ma'am. Can you just explain what is -- what explains the sharp increase in business development income? And also, how do you account for recovery from previously written-off accounts? Does it go to the noninterest income line? Or is it adjusted against the write-off -- provision, sorry?

So the business development incentives are basically the milestones, the kind of milestone incentives that we get from our partners. These are part of -- these are basically contracted, how should I say, elaborates in a way in terms of the number of cards that we issue on a particular network and also on the spend that we do on those cards.

Yes. In a sense, what explains this jump for the quarter?

So if you -- I think the jump is explained basically by the sourcing of cards that we did in quarter 3 and quarter 4 and also the higher spend we saw in quarter 3 and quarter 4. So while most of it was seen around December also, but the impact of that has come in at quarter 4 only, largely.

Okay. And recoveries from written-off?

Recoveries from written-off go into our other income as bad debts recovered.

And this gets clubbed under instance-based fee, right?

It gets, sorry?

Where would you club this income -- in the noninterest income line, which line item?

It goes into the other income line. So if you look at our financial statements and if you pick up the other income line, there will be a...

INR 154 crores.

As bad debt recovery.

Okay. And the quarter 2 questions, sir, Girish, probably this question. If you look at your card book today and you look at the, let's say, the below prime segment, how has been that spend -- how is that spend category set of customers -- kind of where are they in the journey of recovery post-COVID right now?

Girish?

After the, let's say, customers with vintage, which was pre-COVID, on their spend journey, they have all recovered back. In fact, they had recovered back long. I would say, almost a year back, they have recovered back. New customers, which we acquired during COVID, they were showing some bit of depressed spend in the year 2021. And it is that catch-up, as [indiscernible] was mentioning, which is now happening, and it has -- we have seen that this has happened this year. New customers acquired during this last, I would say, 15 to 18 months are showing very good spending behavior, very good activation rates. We -- as you have been seeing, we have been focusing on more younger customers where the activity rates are far better. So from a spend perspective, on an overall basis, I think we have -- it's already caught up. There is only 1 category of spend, which is international spend, where I believe that there is still more opportunity. The balance is -- has broadly reached higher than COVID. In fact, on the travel side, we have declared some of the numbers also. So this is the first quarter in Q4 after FY '20 that the -- we have indexed at almost 140% of what we were in COVID on the travel, specifically on the...

Sorry, in a sense, the choice of spend that they seem to be taking still seems to be overwhelmingly on the EMS side rather than revolver. That journey has still not happened from that segment.

I would state that if I look at spend converted to EMI, that spend conversion to EMI, if I take out the rental spend, because rental typically is more of a transactor trending in nature, if we take out the rental spend, our spend conversion to EMI, actually, that percentage has become higher. So that number has gone up compared to what it was pre-COVID number. And that trend is fairly visible across segments. And when I'm looking at conversion to EMI, it's either at the point of sale or after you have spend and before payment due date you have converted to.

We have our next question from the line of [indiscernible] from [ Schonfeld ].

Am I audible? .

Yes, you are.

So just follow up on the cost of fund comment. So basically, you are saying that because of repo hike last quarter and then the first quarter before, we will see 10, 15 basis points increase in cost of funds. And then after that, because all you have are repos, we should not see any increase in cost of funds, right? But I'm just a bit confused because if I look at historically, when RBI was cutting rates back in 2019 and early 2020, the repo bottomed about 4% at June 2020. But if I look at our cost of funds, it only bottomed about 3, 4 quarters later. So there's a timing lag in terms of calculation of the time when repo [ topped ] or bottomed to our cost of funds stabilized. So just wondering why this time, the cost of funds should immediately stop increasing the moment RBI stopped hiking. I saw 25%, 30% of our funding is from NCV, which the price we got the [ open back ], right?

Your comment is that the cost of funds, why is it increasing when the RBI still paused?

Because you guys are saying that second quarter FY '24 cost of funds just don't increase, right, sequentially because RBI had paused. But historically, our cost of fund repricing, if I just look at most recent episode where RBI was cutting rates, there's -- your cost of fund is still declining 3, 4 quarters after RBI stopped cutting rates. So on the way up, shouldn't there be a repricing back as well? So our cost of funds should continue to increase a bit even after RBI paused because some of our funding could reprice within that.

I'm pulling out the data for the 2008, '09 that you're telling me about. I'll really pull out that data, but just a few pointers in terms of how do we see -- how does our portfolio get impacted. Number one, as we treated in the past as well, that the transmission of any market rate change happens in our portfolio with a lag. So what we saw is an increase in the cost of funds in quarter 3 and now in quarter 4. And what I'm talking about in quarter 1 is with a lag. The RBI started increasing rates in April of last year. So April 2022 is at least for the first increase in the record rate. We didn't see an increase in our cost of funds until quarter 3. So it was almost after about 7 to 8 months that we first felt the impact of an increased market rate on our portfolio. The second point as to why did we see it after 6 months and why are we not immune to it for another 12 months, 24 months is because our liability portfolio largely comprises of short-term borrowings. And that's typically again to do with the kind of assets that we have. If you look at the asset breakup, almost about 39-odd percent is transactor. There is a revolver percentage, which again is short term in nature. You don't really have too many chronic revolvers. In order to have an ALM and in order to have a match funding position with respect to assets and liabilities, we've also been borrowing short, and which is why every 6 months, every 9 months when the portfolio comes for a repricing is when you're actually able to feel the impact of the market rates. So those are the 2 characters that I wanted to first lay out. As I said earlier, we've seen another rate hike in February. The impact of that will be felt as our portfolio from whatever portfolio. Whatever amount of our portfolio comes to repricing in the first quarter, we've done some modeling around that, and we expect that, that increase is going to be 10 to 15 basis points. I called out earlier, and if there are no further rate hike, we shouldn't see the cost of funds stabilize over the next 2 quarters. And if the cost -- if the market rates start to trend down from now onwards until the third quarter of this financial year, we will then see the impact of cost -- on the cost of funds, where it starts to come down towards the end of this financial year. So you're absolutely right. It is with the lag because our portfolio gets repriced almost at about a 6- to an 8-month kind of sequencing. This is how we've felt the impact of the market rates.

[Operator Instructions] We have our next question from the line of Pankaj Agarwal from AMBIT Capital.

Ma'am, if I look at your cost of funds, it used to be 8% before COVID, and the policy rates were almost similar to the current year. So it used to be in the range of 8% to 8.5%, right? And so what has fundamentally changed in your funding profile over the last 3, 4 years, so that your funding cost will remain below pre-COVID levels?

I don't think we've mentioned that we're going to go -- so we've said that the rates are going to go up.

[indiscernible] around -- with the policy rates remaining more or less at the same level. However, we're confident about the trajectory being [indiscernible] increase 10, 15 basis points. I think if you're comparing a situation 3 years back or 4 years back, I think the share of long term in our overall funding have increased over a period of the last 4 years from a 9%, 10% to 15%, to now 35% kind of overall. So that provides the kind of [indiscernible] rate increases. So we have been steadily increasing, but of course, when the rates are peak, obviously, we are looking at what is the right timing and what is the right instruments. So our endeavor is to continue to increase it in a meaningful way, in a very calibrated way, so as to insulate. But of course, as Rashmi has also said, like we want to do the match funding, and we want to get the opportunity of pricing it actually at the lowest rates whenever the market rates get. So that's the fundamental difference between a 4-year back scenario and the current scenario.

So basically, your duration of your liabilities have come down over the last 3, 4 years, right?

The duration of liabilities have increased because the long-term share -- long-term liability [indiscernible] NCDs of 3 years or otherwise subordinated bonds are kind of maybe out for 10 years what we rise. Actually, it has increased actually over a period of time.

Then I mean if that is the case, don't you think then your funding cost can go get to 8% at some point of time despite the current policy hedging, The reason I'm asking is that before COVID...

But you also need to take into account is what Mr. Rao just mentioned, that the increase in our long-term funding has happened in a scenario when the rates were lower. So we've been increasing our long-term fund post-COVID. And post-COVID, the rates were low, and we're benefiting from that.

Okay. Okay. So basically, you've locked in a lot of funds at very lower rate, and they are longer duration.

Yes.

Yes.

The reason I'm asking this question is that generally, there is a tenure of premium, right? So keeping everything else constant, if your tenure of liabilities are higher, the cost of funds should be higher. And as I said, at a similar repo rate, given the 8% cost of funds, similar type of focus, 4 years back, right? So ideally, if your tenure premium -- your tenure has gone up, then at some point of time, in the similar policy rate, your cost of fund can go back to 8%.

Yes. I think we'll have to go back and look at the numbers there. I mean I do have the numbers for 2018, '19. They're at about 7%-odd. You also will have to look at the other things besides the repo rate, the credit premium, et cetera, as well, as to how much the credit premiums at that point in time for the accelerated entity compared to where it is right now. So we'll have to look at all of those factors. But as I said earlier, that our modeling shows another 10 to 15 basis points stabilization, and beyond that, we'll have to just see as to how the market reacts. If the credit premiums go up, obviously, even if the benchmark rates remain low, the credit premium will come and impact the cost of funds for SBI cards as well.

We have our next question from the line of Anand from HDFC Mutual Fund.

Ma'am, can you hear me?

Yes.

Ma'am, I just wanted to understand on the spend-based fee income, how should we look that going forward, as most of the spend category where the NPR are generally higher are opening up, and we are seeing interaction of that. Should we expect the spend-based fee income to grow higher than the overall spend next year?

How should we think about the spend-based income next quarter [indiscernible]...

Okay. Spend-based fee income is primarily the interchange that we earn from -- on the spending. It is dependent on the 3 elements, as we have always been stating. The mix of the categories in which the spend is happening, which kind of products, whether it is a premium product, which is at the higher end of network spectrum or at the lower end, which card person is spending. And thirdly, whether it is a retail versus corporate mix. Because corporate typically, now even though it gives you a higher interchange, but you have to do a passback. So net margin, as we have stated, is very less. Over the last period of -- during the COVID, we saw these interchange rates going down because people's consumption in the discretionary items was going down, and nondiscretionary was stable, where the interchange rates are typically lower. Now as you have seen, there has been a marginal stability and some marginal increase in the -- of late, as the travel has gone up, retros have gone up, last year, those things have gone up. So what we see is, futuristically, for the next year, we believe that this rate will remain stable. There are some headwinds, and there are some tailwinds. There are both positives and negatives which are happening in these categories. But broadly, we expect it to remain stable.

Sir, on the instance-based fee income, this quarter, we have seen a sharp improvement. Do you think as we keep on changing more and more [ FC ] avenue, like fee on the rental, do we see that instance-based fee income to improve further? Or...

We levied rental fee of INR 99 from November of last year, and then we increased it from March 17 to INR 199. So INR 99 -- half of the last quarter was positively impacted by that, but you have to also recognize that the OEM fee was completely not there, which is also an instance-based fee in Q3. In Q4, we have seen a full benefit of 99.5, almost [ 70 bps ] benefit of INR 199. These are in line with what the industry is charging. Typically, the industry rate, their charging is 100 bps on the transaction. And we have seen that the average ticket size is around INR 20,000 to INR 21,000. So INR 199 is almost broadly in that range. It is in line with the industry average. We have not seen, as I stated earlier, a decline in the spend. Whether the spend will increase further or not, that is a matter of transaction, but those spends are -- little spends are stabilized.

So if I look at, sir, in terms of spend, instant-based fee income is approximately 1.2% of the spend this quarter. Should we assume this trend to sustain or to improve from here on?

It would not be on rental, it will not be 1.2% because we get interchange on that also, okay? It's not a 0 interchange category. So there is an interchange also available. And after that, we are now charging INR 199. So the number is higher. We believe that, that should remain stable at least in this quarter.

Perfect. Sir, this year, our operating profit growth was 17%, despite the fact that we have seen significantly higher interest rate. We have seen lower revolve rate. How do you see this number going forward? Because interest rates will likely stabilize in the second half. And do you see some cost synergy also coming us -- for us?

I think you are talking about [indiscernible], our operating profit. [indiscernible] 17%. But for the quarter alone, if you look at, as compared to the year-on-year basis, it's 22%. So I think that way, this quarter -- I mean last quarter itself -- Q3 itself reflected a kind of -- observed a negative impact on account of all the regulatory provisions, which has impacted certain fee lines like OVL. So in Q4, whatever steps we have taken, more or less, it's reflective of what's the contribution from the new levies. So I think that this give a kind of direction of what we are aiming, where we want to optimize the cost, continue to focus on digital, increase the share of channels of sourcing. This will improve steadily. That's the kind. And overall, if you look at -- I mean if you were to take any way -- slightly away from this operating profit, overall retail metrics, if you look at, the way to look at it, like quarter-to-quarter, there will be fluctuations, even in operating profit, even in ROA, ROE. But long-term average is whatever we have, like a 5% plus, 25% [indiscernible] that will be maintained. That is the minimum [indiscernible].

We have our next question from the line of Nitin Aggarwal from Motilal Oswal.

I have 2 questions. One is like over -- if you look at the new card sourcing, then over the past 2, 3 years, the mix of self-employed has risen to now 39%. It used to be in early 20s. And likewise, the mix of government employees has also reduced sharply. But the revolve rate isn't really picking up. In fact, it has only been like down since then. So is there any threshold that you would like to adhere to while broadening the rest filters to boost revolve rate? .

[indiscernible]

So basically, for the self-employed customers, a lot of self-employed actually comes from our Banca channel, where we look at their saving accounts, current account behavior, and we onboard them. So it's a relatively better profile. We have a better visibility to the cash flows. So in that way, I mean I would say it's relatively a lesser risk -- I mean lesser risk in terms of self-employed, because it comes from the Banca channel. In the open market, also, we look at repayment performance in the bureau before we onboard self-employed customers. So all those checks are done in place. And so we have a better idea about the customers' repayment potential when you onboard self-employed employees.

All right, ma'am. So today, the mix is like 61%-39%. Yes. So this number, like we are not looking to have any limit on this 39% self-employed, what we have reported this quarter?

Yes. Yes, 39% this quarter contributed early.

Yes.

We are putting any [indiscernible]. I think the way we are operating is like, obviously, we look at what is the potential -- what is the customer choice, obviously. And what is the kind of channel we are using, et cetera, we take it into account. Of course, delinquency does matter, and the risk-adjusted profitability at the end of the day, finally, that matters. So as long as all these metrics match and the acquisition is holding in terms of meeting all these expectations, we would like to continue. But to your question -- other question around revolver self-employed, because as much as we're requiring more of these customers through the Banca channel, where we have the auto debit and [indiscernible] kind of facilities, it revolves [indiscernible] through Banca channel.

We'll take our last question from the line of Piran Engineer from CLSA.

Just 1 data question on -- like if you can share how many rental transactions happened on your platform over the last 3 months. And just to clarify on this instant-based fees of roughly INR 830 crores. Is there any one-off, any element of seasonality? or any reason why it should dip next quarter if spends don't dip?

So I've already told you the average ticket size is between INR 20,000 to INR 22,000. And the weightage of spend is almost around mid-teens. So you can make an estimate on a number of transactions.

Okay, okay. Fair enough. And on the next thing on instance-based fee?

Yes. On the instance-based fee, as I called out earlier, that there is a provision of rental fee that come in, in this quarter, which should stay also stabilized or should stay at these levels only for the next few quarters as well. There is some milestone incentive that we've gotten. I think that will normalize over the next few quarters. So while -- I think if I were to just look at more BIU business perspective, this number should continue to grow. Will it see the kind of jump in between quarter 3 and quarter 4? The answer is no. We'll see a more normalized increase going forward quarter-on-quarter.

I would now like to hand the conference over to Mr. Rao for closing. Over to you, sir.

Yes. Let me thank our shareholders, investors and business partners for their continued trust and support to us. I would also like to thank my colleagues at SBI Cards for their continued commitment to ensure the company's success. I would like to highlight that SBI Cards' strong focus on sustainability has [ healthily ] emerged stronger past any market events. While we cannot control the external factors, but we do believe that our strong business model, our agility as a business and adaptive approach equips us well to keep fueling our growth in the future. Thank you all for participating in this call.

Thank you. 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.