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 Q1 and FY '27 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Ms. Salila Pande, MD and CEO, SBI Cards. Thank you, and over to you, ma'am.

Thank you, Danish. A very good evening to everyone. Along with the senior management of SBI Cards, I extend this warm welcome and sincere thanks for joining us today for the Q1 FY '27 earnings call. India's macroeconomic fundamentals continue to provide a strong foundation for the long-term growth. Even amid a volatile global environment, the Indian economy remains amongst the fastest-growing major economies. The GDP projected to expand around 6.6% in FY '26, '27, supported by strong momentum in private consumption and services. Alongside stable economic state, India's rapid digital transformation is reshaping how consumers and business transact, creating a stronger foundation for digital financial services. India's digital payment ecosystem continues to expand rapidly, supported by strong merchant payments growth and an extensive QR network infrastructure. India has emerged as a global leader in real-time digital payments, with 49% of the worldwide transaction volume and UPI serving as the backbone of the country's digital economy, enabling instant and secure payments of scale. The future of financial services lies in the convergence of payments and credit. The UPI drives engagement and credit cards deepen customer relationships through credit access, flexibility, rewards and trust. A significant development has been the growing adoption of rupee credit cards on UPI, which is expanding the role of credit cards. This structural evolution is translating into sustained growth for the credit card industry. India now has 121 million credit cards in circulation. Looking ahead, the industry is projected to grow consistently over the next decade. The regulatory environment has also evolved significantly, with increased emphasis on responsible lending, customer suitability, digital resilience, cybersecurity and customer protection. We believe these measures are positive for the long-term health of the industry and will further strengthen customer confidence in digital payments and financial services. At SBI Cards, our strategy remains focused on strengthening our market position through disciplined execution, customer-centric innovation and sustained investments in digital capabilities. As the industry continues to evolve, we will continue to build a business that delivers sustainable growth while creating long-term value. To support this strategy, following key priorities will define the next phase of growth. We will grow Banca as a channel and acquire premium customers digitally with high spending patterns and good credit scores; strengthen our diversified core and co-brand product portfolio across all key sectors, including lifestyle, retail, travel, among others; expand our reach in potential growth markets, including Tier 2 and Tier 3 cities, along with the metros; continue to invest in next-generation digital capabilities to elevate and simplify customer churn; harness data and analytics to enhance customer insights and engagement; strengthen credit decision making, making robust underwriting standards; prudent risk management and reinforce portfolio quality. Our strong market position, with 18.6% market share in cards in force and 19.5% share in card spends reinforces confidence in our strategy and our ability to deliver sustainable growth in the evolving credit card markets. As a customer-centric organization, SBI Cards continues to focus on various initiatives during the quarter. We expanded our strategic partnerships to introduce relevant national, regional and local offers, broadening customer choice. SBI Cards' valid initiatives have been recognized and bestowed with many prestigious awards. We were honored with the prestigious [ AB ] Awards for best use of augmented reality, and the ET Brand Disruption awards for most disruptive customer experience and engagement. The awards recognize our continued focus on innovation and enhancing customer experiences. I'm pleased to share that during the quarter, our core brand BPCL SBI Card crossed the 5 million milestone, making it one of the largest fuel co-branded credit card partnerships in India. As regards to business performance, building on the momentum from the second half of FY '26, we began the financial year FY '27 by delivering on our stated objective across business and financial metrics. I'm pleased to share that as of now, SBI Cards is the second largest credit card player in terms of cards in force, spends as well as transactions. Cards in force have grown to around [ 2 crore 26 lakh ], witnessing a 7% growth Y-o-Y. In alignment with our stated strategy and road map, we successfully added more than 1 million new accounts in Q1 FY '27, with 17% Y-o-Y growth. As per the RBI data released yesterday, SBI Card has added a net card addition of 4.84 lakhs, which is highest in the industry for the quarter. Our sourcing distribution remains balanced, with about 47% sourcing from Banca and 53% from the open market. As per RBI June 2026 data, our spend market share has grown to 19.5% versus 18.1% in FY '26. Total spends have reached highest ever level of [ 1 lakh 18,475 crores ] in Q1 of FY '27, growing 27% Y-o-Y. Retail spend also reached INR 94,033 crores with a 14% Y-o-Y growth. We have seen good growth in both POS and online spend across most spend categories. Key ones include consumer durables, furnishing and hardware, apparel and jewelry. Online spend continued to be strong and contributed to 63% of the total retail spend. UPI on credit card usage has grown further by 13% quarter-over-quarter, especially in department stores, groceries, utilities, fuel, restaurant and apparel categories, driven by rupee and QR acceptance. Tier 2 plus cities continue to contribute strongly to overall retail spend on the back of UPI on credit card spends. Supported by momentum in customer spend, the receivables have increased to INR 58,269 crores, representing a growth of around 2% quarter-over-quarter and 3% Y-o-Y. Interest-earning assets remained stable at around 55% and revolver rates were 22% in the [ IBNEA ]. We expect asset growth to pick up from the second half of financial year '25 -- 2027, given higher new acquisition from this quarter onwards and festive season in Q3. Coming to the financial performance. Our PAT for Q1 FY '27 has grown to INR 664 crores, up 20% Y-o-Y, driven by significantly improved credit cost. The total revenue for Q1 FY '27 stood at INR 5,205 crores with 3% Y-o-Y growth. Operating cost was higher Y-o-Y, mainly due to business growth. Despite volatility in interest rates in Q4 FY '26 and Q1 FY '27, the daily average cost of funds remained stable at 6.6% from Q1 for the quarter ended June 2027. However, we expect cost to trend higher in line with the market rates. With portfolio yield at 16% for the quarter, the net interest margin for the first quarter was at 10.8%. Our liquidity position continues to be strong. Our capital adequacy ratio remained at a healthy level of 25.6%. ROA for the quarter was 3.9%, 51 basis points higher Y-o-Y and 26 basis points higher quarter-over-quarter. The improved profitability and higher ROA -- sorry, the improved profitability and higher ROA puts us on track to achieve our stated ROA guidance of 4% to 4.5% in medium term. ROE for the quarter was 16.5%, higher by 72 basis points Y-o-Y and 89 basis points quarter-over-quarter. Coming to the asset quality, while the external environment continues to be influenced by global geopolitical uncertainties, our current assessment is that the domestic macro fundamentals remain relatively resilient. Over the last 2 years, we have taken multiple actions to strengthen underwriting portfolio monitoring and collections, which has led to an improvement in the asset mix, with Stage 2 and Stage 3 contributions in the asset book being lowest post-COVID. Our gross credit cost has improved by 116 basis points quarter-over-quarter and 301 basis points year-over-year to 6.5%, continuing the reducing trend over the last 1 year. Gross NPA has reduced by 36 basis points quarter-over-quarter and 102 basis points year-over-year to 2.04%. Net NPA is below 1% at 0.83%, which is the lowest since Q3 of FY '23. NPA stock has reduced by INR 179 crores quarter-over-quarter and INR 544 crores year-over-year to INR 1,191 crores. Stage 2 at 3.57% of the asset book has reduced by 10 basis points quarter-over-quarter and 116 basis points year-over-year. Annual review of the ECL model has been completed in Q1 of FY '27. As a result of this, INR 180 crores has been consumed out of INR 220 crore overlay of the previous quarter. Further, with improved portfolio mix during the quarter, a provision of INR 65 crore has been released. However, we are still carrying forward INR 70 crore of overlay, keeping in view the current geopolitical uncertainties. Delinquencies have reduced in this quarter [ too ], as witnessed in the last 6 quarters. We continue to remain watchful, particularly for any second order impact on fuel prices, inflation, and consequently, customer cash flows. As we continue to maintain underwriting discipline and robust portfolio monitoring and strong collections, we expect the gross credit cost to stay within the current range, subject to any adverse impact of Middle East conflict on the asset quality. To conclude, as we look forward, we believe the fundamentals of the credit card industry remain promising, providing a strong foundation for sustainable long-term growth. Our strategy is centered on balancing growth with profitability, creating enduring value for all our stakeholders and maintaining strong asset quality through disciplined underwriting and prudent risk management. Guided by these priorities, we are very confident of our ability to deliver profitable growth and further strengthen our market position in FY '27. With that, thank you all for your time. Now we are happy to take questions.

[Operator Instructions] The first question comes from the line of [ Nilesh Sharma ] with [ Monomer ] Capital.

Very happy to see the improved market share and improved numbers on business trend. Ma'am, how we can predict or we can foresee in revolver account in coming financial year?

So Nilesh, we expect the revolver to continue to be stable where they are right now. As we have been saying that we have witnessed a little bit of a downward bias on the revolver. But they will stay in somewhat the similar range. But as I mentioned earlier, that we have seen very good uptick in terms of our credit card acquisitions. And also, there are a lot of initiatives which have been taken which have led to better IBNEA this quarter, also growth in the EMI portfolio. So all these things are definitely going to add to the revenue in the coming days.

Okay. And how much [indiscernible] from 33%? Any guidance to increase that portion as well?

So no, we are not giving any guidance in terms of the numbers, but expecting that, see, the festive season is ahead of us. Definitely, there will be an uptick in the EMI portfolio going forward.

Okay. And last question. Considering that ongoing current global geopolitical situation, how do you see the cost of fund and market spend?

So cost of funds, I would say, as of now, we don't expect much change. It should remain somewhere in the similar range. Ultimately, it will depend to a very large extent on the policy action as well in terms of the rates. But -- the second question was on the spends, right? So again, we are monitoring the portfolio in terms of how it is going to impact the Middle East conflict. As of now, we have not witnessed anything substantial. But as I mentioned, we will continue to monitor because we are in the business of unsecured lending, and we will stay alert to any significant stress happening, and we'll take quick action if needed.

[Operator Instructions] Our next question comes from the line of [ Ameya Kandaga ] with [ HDFC ERGO ].

Yes, I'm audible, right?

Yes, you are audible.

Yes. Congratulations on a good quarter. I mean, we see that we are now improving trend. My 2 questions are -- basically, I want to understand, from a credit card perspective, do we have a PL on credit card kind of a product because we see a lot of our competitors having those kind of products? So for that because that should help us on the EMI side? And the second part is from EMI itself, EMI, like, including the share of EMI, what -- if you could elaborate a bit more on what the initiatives we are taking and how it is panning out over the last, let's say, 1 year. And so -- and just last question would be on -- I mean over the past 2 years, we have seen that we have been very fit in terms of what kind of portfolio we underwrite or what kind of limits that we provide to our customers, and we have been very strict about not going very overboard with respect to increasing the limits of our customers. So going ahead, as we see that portfolio seasons a bit, do we now take some of these initiatives in order to improve on our spend growth? So if you could speak on that as well.

You can talk of the EMI.

So on the EMI, as we have stated in last couple of calls also, our focus primarily is on spend to lend. So we are focusing on how the customer converts its spending to the -- either at the point of sale itself or after that. So to that effect, actually, in the last 2 years, there's been a lot of effort which has gone in. We have understanding and arrangements with almost all the OEM in the country, wherein we -- and have offers for our customers at the point of sale or online. We also work with all the payment gateways, PDs and intermediaries in between, who are able to process the data and be able to give it to us in directly, okay? Moreover, the kind of offers that we have for our customers -- more than offers actually, it is the ease of converting your outstanding balance into installment, which is very critical. So if you open our mobile app, which is very highly rated. So today, our mobile app is rated 4.5 and 4.6 on both iOS and Playstore. So in those, if you open the mobile app at the first instance where it is -- the pay now button, along with it has pay in EMI. So it gives the option to the customers to pay in installment. We see a good percentage of our spend in double digits, which gets converted into installment lending every month. So it is a very large number. Second thing is it is also helped here by the consumer behavior moving in that direction. In the -- for example, in the last quarter, you would have seen that the prices of consumer durables have gone up. And the moment the large ticket size or consumer durable prices go up, the conversion rate to installment lending also goes up along with it. So that trend line is also fairly visible. So this is how we are focusing on installment lending. On the credit line -- on the credit limits piece, we have been -- as a normal standard -- yes, a normal standard, we have been increasing and decreasing credit limits based on the risk profile of the customer. So...

Yes. So as Girish rightly said, see, we now have a better visibility because we have been enhancing our analytics also off late, where we have a better visibility, and we are in a better position to improve the income of the customer as well. And of late, we have done a lot of rationalization of limits as well, and we have seen an increase where -- maybe we were slightly conservative, yes, because we were going through a tough cycle. But that rationalization is already underway. And the enablers that are in place today enable us to basically do that kind of rationalization. And we are already working on it.

So we should see like a reversal in this trend where we no longer need to rationalize it further? Because where I'm coming from is, if you want to have those EMIs increasing, ideally, that would come hand in hand with having a higher limits with the customers because if somebody wants to make a big purchase, I want to convert it to EMIs. He would want to do it on a card where he has a higher limit. That's where I'm coming from.

So [ Ameya ], let me correct myself. By rationalization, I mean increasing the limit. Rationalization can go either way. If some customer is eligible for a higher limit, you will get a higher limit. And you're absolutely right that limit sometime can be a constraint for boosting spend. But if you look at our spend numbers also, we have been doing better than the industry overall. So things are benefiting us overall in terms of the -- enhancing the overall value for the company.

And on this PL on credit card fees, if we -- if you have any products from that and if there is any pickup for us?

So as of now, some of our customers carry that asset. But to a new set of customers, at this point of time, we are refraining from offering that. We will -- we might look at it into the future. As of now, we are not offering.

But like just what is our thought process behind that because as I understand, this is a quite a good product and you already know a lot about the cash flows and the repayment of these customers. So why would we refrain from having a PR kind of our product?

We are evaluating it, Ameya, as of now. It's an internal evaluation.

Next question comes from the line of [ Rohan M ]. with Equirus Securities.

Congrats on good set of numbers. I wanted to understand like what would be your guidance on credit cost by the exit quarter of current financial year? And how are we looking at the receivables growth for FY '27?

So see, as of now, again, I'm not giving any guidance on -- in terms of the numbers. But as I mentioned, that this trend of credit cost, we will see some more moderation going forward. That is what we are -- the -- whatever initiatives we have taken in the last 1.5, 2 years, basically, that has resulted in the stock being at such a position that the credit quality will further improve. And as I gave a guidance in the second half of this year, we will see growth in receivables as well. I'm refraining from giving any guidance in terms of the absolute numbers or percentage terms right now.

Sure. And like one of our competitors, [indiscernible] Private Bank has indicated that by 3Q, they should see the credit cost over back to 5%. So like we are expecting almost normalized trends by second half. So in that context, I just wanted your views...

Normalization can be debated, first of all. But definitely, as I mentioned, we will moderate further in terms of credit cost.

Sure. And secondly, if you look at the data that comes out on RB on the credit by NBFCs to consumer durables, that's been growing at a healthy rate. So does that impact our spend and the EMI book? And like are any steps that you can possibly take to offset that question?

No. Actually, if you look at it over a long period of time, both have been growing consistently. So there is -- from a credit card spend perspective, that is a mix of payment as well as lending requirement, whereas NBFC's loan book is primarily lending requirement.

Right. So essentially, somebody who's taking that loan there -- and in case they're getting it at a better rate, they will be cannibalizing our growth.

See, 2 things there. You're right that if there's an option for going for a personal loan -- maybe a customer may take -- if he has an option of lower-priced personal loan, he will take a personal loan for that purpose. And that is why -- what Girish spoke about is that EMI product is something which is comparable in terms of pricing is something which we are working on as well. And that is one of the reasons why we have seen a slight reduction in the revolver rates as well. And the second thing, see, is this -- what we believe is that in India, credit card is a very underpenetrated market right now. We have not still reached to very many customers. And now with the kind of data which is available -- it's not that the personal loan product and credit card product cannot work together. There is tremendous opportunity for both. And you are right that there will be some customers who might have availed a credit card limit earlier as a revolver might be doing a personal loan today, which is fine because there are other opportunities for us.

Just one thing to add. If it is a structured requirement of money and the customer knows about it in advance and it is a large ticket, then people go for personal loan, okay? So -- and that's the standard. If you look at the average ticket size of personal loan, ranges from anywhere between 1.5 lakhs to 2.5 lakhs, okay? Tenor sizes are longer. It's 36 months, 33, 34, 35 months or so. Whereas the kind of lending which is happening on the card, which is the EMI installment-based lending is 9, 10, 11 months kind of thing, okay? So they are 2 different thought processes and requirements of the customer.

Sure. And sir...

I'm sorry to interrupt, but you may please rejoin the queue for more questions. [Operator Instructions] Our next question comes from the line of [ Vikram Raghwan ] with [ Moon Capital ].

My questions have been answered.

Sure. Our next question comes from the line of Nilesh Sharma with Monomer Capital.

My question is on the growth mix between the retail and corporate spend. And could you please share its long-term outlook for these 2 segments? And also, I wanted to understand relative economics of each portfolio in terms of yield, inter fees, credit cost and ultimately our impact on our bottom line.

So corporate spends, we have also earlier stated also, we would like it to be around 20% of our overall spend. Industry typically has an average of around 20% to 25%. We want to be at the lower end of the spectrum. Corporate card spends are typically -- we don't give lending options there. So the customer has to pay back the full outstanding balance. So primary source of income is interchange. Interchange varies by the card type, MCC or merchant category and the product type which is being held by the customer. Depending on these, whatever interchange is available on corporate versus consumer, that are 2 different things. Profitability in terms of -- if you look at ROA because the asset is not there, so return is primarily fee income there, whereas on the retail side, you make fee income as well as you make interest income also. On an overall basis, the absolute sense, the corporate card profitability is very low. Our business is essentially -- the profits are essentially shown by the retail card.

Okay. Sir, any target to go below 20%? Or is it composite to maintain this due to industry nature?

No. We can take it below 20% also. We like to keep most of our spends profitable. And as for the -- there is obviously a seasonality and customer sensitivity around this. But we will -- 20% is kind of the higher end of the spectrum for us.

Our next question comes from the line of Rohan with Equirus Securities.

I just want to understand the employee OpEx increase that has happened Q-on-Q?

So the employee OpEx increase this quarter is on account of the provision increase in our past services account provisioning the liability that you've added on account of the change in the new wage code.

Sure. And lastly, just in terms of the customer behavior in terms of the clip pay, those sites were slipping into NPA. Like a few quarters ago, it was explained that people don't spend much time in revolve. And as soon as there's some elements [indiscernible]. So are we seeing any change there or that behavior still continue?

No. Not these days, actually, if you look at our entry rates, they are at almost, I would say, decade low. So the entry rates into the first bucket itself are very, very low. And you have seen already the credit cost is at this level and hopefully, it will get moderated further.