SBI Cards and Payment Services Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
August 3, 2022
The BSE Limited Corporate Relationship Department. PJ. Towers. Dalal Street, Fort Mumbai - 400 001
The National Stock Exchange of India Limited Exchange Plaza, Bandra-Kurla Complex. Bandra (E), Mumbai - 400 051
SCRIP CODE: 543066
SYMBOL: SBICARD
SECURITY: Equity Shares/Debentures
SECURITY: Equity Shares
Dear Sirs,
Re: Disclosure under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 - Transcript - SBI Card 1O'FY23 Earnings Call
In compliance with the provisions of Regulation 30 read with Schedule III Part A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, transcript of the Earnings Call held on July 28, 2022 with analysts/investors, has been made available on the website of the Company at the below mentioned link. Further, the same is also attached herewith for reference.
https: //www.sbicard.com/en/who-we-are/analyst-investor-meeting.page
Kindly take the same on record.
Thanking you,
Yours faithfully,
For SBI Cards and Payment Services Limited
Payal Mittal Chhabra Company Secretary & Compliance Officer
SBI Cards and Payment Services Ltd.
DLF Infinity Towers, Tower C, 12th Floor, Block 2. Building 3, DLF Cyber City, Gurugram - 122002, Haryana, India
Tel.: 0124-4589803 Email: customercare@sbicard.com Website: sbicard.com
Registered Office: Unit 401 & 402, 4th Floor, Aggarwal Millennium Tower, E 1,2,3, Netaji Sub hash Place, Wazirpur, New Delhi - 110034 CIN - L65999DL 1998PLC093849
OSBI Card
“SBI Card & Payment Services Limited Q1 FY2023 Earnings Conference Call”
July 28, 2022
MANAGEMENT:
MR. RAMA MOHAN RAO AMARA – MD & CEO MR. GIRISH BUDHIRAJA - CHIEF SALES & MARKETING OFFICER MS. APARNA KUPPUSWAMY - CHIEF RISK OFFICER MR. PRADEEP KHURANA - CHIEF INFORMATION & DIGITAL OFFICER MR. SANJEEV KHURANA – SENIOR VICE PRESIDENT-FINANCE
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Moderator:
Ladies and gentlemen, good day and welcome to SBI Cards & Payment Services Limited
Q1 FY2023 Earnings Conference Call. As a reminder all participant lines will be in the
listen-only mode, and there will be an opportunity for you to ask questions after the
presentation concludes. Should you need assistance during the conference call please signal
an operator by pressing “*” then “0” on your touchtone phone. Please note that this
conference is being recorded. I now hand the conference over to Mr. Rama Mohan Rao
Amara - Managing Director & Chief Executive Officer of SBI Cards. Thank you and over
to you, Sir!
Rama Mohan R Amara: Thank you Rutuja. Good evening, everyone! I extend a warm welcome to all of you. Thank
you for attending the earnings call for Q1 FY’23 today.
Our immediate environment continues to be dynamic owing to geopolitical issues and its
consequences. Increase in energy prices have driven up inflation globally.
In India, RBI has been taking relevant measures including hiking interest rates to contain
inflationary pressures. Amidst all this, according to industry experts, India stands at a better
position currently, in comparison to other economies in the world. RBI expects India’s GDP
growth to be 7.2% in FY2023. The consumer confidence showed continued recovery, as per
RBI’s Consumer Confidence Survey.
Credit cards spends have also followed the suit with monthly spends having stayed above
Rs 1 lakh crore consecutively. The credit card industry, which has shown consistent growth
despite changing economic environment, is undergoing a positive shift with many
conducive regulatory changes being introduced in the past few months. As per new RBI
Master Circular, some changes are already in force from 1st July 2022, and some have been
deferred to 30th September 2022. All the guidelines issued by RBI are progressive and
basic ethos is cardholder convenience and protection.
At SBI Card, we are compliant with all guidelines which were to be implemented on 1st
July 2022. We have already sent relevant communication to inactive cardholders in line
with RBI guidelines through various channels. For us, the percentage of such customers in
our portfolio is low. Moreover, we expect a large percentage of such customers to be
retained.
i. With respect to the guideline on 30-day activation for new customers,
implementation deadline has been extended by three months and hence the same
will be rolled out by 1st October. Further, RBI has given multiple options for
considering a customer to be active.
ii.
Overlimit changes (OVL) that will come into effect from 1st October 2022 will
also be basis customer choice. This change is similar to online transactions
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switching activation. There is a possibility that initially customers may find it
difficult to adapt to the change, but as in the case of online transactions, we expect
that the change in OVL may stabilise over a period of time.
iii.
Another change introduced by RBI is enabling RuPay credit card transactions on
UPI. Discussions are going on with various stakeholders in this aspect. We are
working on tech integrations while NPCI is in discussions with all the
stakeholders on the MDR. This is expected to be resolved shortly. As the industry
evolves and grows, SBI Card continues to be one of the significant contributors of
this growth.
Let’s now look at SBI Card’s Business Overview in Q1 FY23.
We were able to deliver a healthy business growth with strong financial performance during
the quarter. Before I proceed with details of the business performance this quarter, I would
like to share two key recent honours with you that we have received as an organisation.
i.
I am happy to share that SBI Card has been certified as a ‘Great Place To Work’
for March’22-March’23, a key milestone for us because our employees are our
most valuable asset. It is a testament to our efforts in creating a healthy work
culture focused on integrity, respect, transparency, and trust which is conducive to
the growth of our employees as well as the company.
ii.
As a brand, we continue to be recognised in the industry for our initiatives and
efforts. We have recently been recognised as ‘Best BFSI Brands 2022’ by The
Economic Times for the third consecutive year.
As you can see, we entered this fiscal year on a positive note, and the same is reflected in
our business indicators for the quarter as well.
i.
In Q1 FY23, we achieved the milestone of 14 million cards in force and
contribute 18.4% of market share in the industry. This milestone is a marker of
our consistent growth trajectory. This quarter we have sourced over 900K new
accounts which is a bit lower than 1 million mark. However, the small drop in the
last quarter is due to cyclical Banca sourcing variation. We have already started
working on fresh set of leads in Banca and the July numbers are much stronger.
ii.
Our overall spends continued to see a healthy growth and has grown by 79%
YoY, standing at Rs 59, 671 crore in Q1 FY23 vs Rs 33, 260 crore in Q1 FY22.
Our spends market share stood at 18.6%. Retails spends stood at Rs 45, 488 crore
in Q1 FY23 vs Rs 27, 098 crore in Q1 FY22, an increase of 68% YoY.
iii.
Online spends continue to grow consistently and these now contribute to over 55% share in
overall spends, as of Q1 FY23. Noticeably, it is heartening to see that key spend categories
have crossed the pre-COVID levels, including travel and entertainment category. While
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categories like Departmental Stores, Health, Utilities, Education, Consumer Durables,
Furnishings have seen a steady growth of 7%; travel and entertainment category has seen a
growth of 31% in total spends in Q1 FY23 vs Q4 FY22. Corporate spends are at Rs 14,183
crore in Q1 FY23 from Rs 6,162 crore in Q1FY22. However, in the month of Jun’22, we
have reviewed and reduced some B2B spends on certain low margin corporate accounts.
This is in-line with our continued focus on sustainable and viable growth. Most importantly,
our spends per average card has seen a significant growth. It has risen to Rs 1.7 lakh in Q1
FY23 from Rs 1.1 lakh in Q1 FY22. This is a good indicator of customers’ growing
preference for SBI Card as a payment option. It has been driven by various attractive and
relevant discounts and initiatives that we have offered to our customers.
iv.
Our revenue streams remain healthy and diversified. The Revolver mix has grown to 26%
in Q1FY2023 from 25% in Q4FY2022. EMI mix has also grown to 35% in Q1FY2023
from 34% in Q4FY2022. To further improve our revolver mix, we have been recalibrating
our risk appetite.
v.
During the quarter, we continued to bolster our product offerings to our customers and
expanded our co-brand portfolio with the launch of Aditya Birla SBI Card, one of the most
rewarding lifestyle credit cards, in partnership with Aditya Birla Finance.
Please allow me to now take you through the financial performance in Q1 FY23:
i.
All the positive business indicators have supported our financial performance.
Our resilient business model embedded on strong fundamentals have helped us
deliver healthy financial growth.
ii.
During Q1 FY23, our revenue performance continued to be led by healthy interest
income and strong fee growth. The company has achieved the PAT of Rs 627
crores in Q1 FY’23, a growth of 106% YoY and 8% QoQ.
iii.
iv.
In Q1 FY’23, receivables stood at Rs 33,215 crores with a growth of 36% YoY.
Our total revenue stood at Rs 3,263 crores and has grown at 33% YoY during the
Quarter.
v.
In spite of 25 bps increase in COF, our NIM remained constant as the interest
income yield also improved. In the rising interest rate scenario, we are hopeful
that the impact of the same may be partly mitigated through higher Interest
Earning Assets.
vi.
On asset quality, Our Gross credit cost percentage has considerably declined to
5.6% from 10.4% in Q1FY22 and net credit cost percentage has also declined to
3.8% from 9.0% in Q1FY22.
vii.
Our GNPA has come down to 2.24% as compared to 3.91% at Q1 FY22 and
2.22% at Q4 FY22. Net NPA for the period is at 0.79% as compared to 0.88% at
Q1 FY22 and 0.78% at Q4 FY22.
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viii.
ROAA for the quarter ended Jun’22 is at 7%, which is higher by 247 bps as
compared to 4.5% for Q1 FY22; and ROAE is over 30.8%, which is higher by
1217 bps as compared to over 18.7% for Q1 FY22. Our liquidity position
continues to be strong and capital adequacy is at 24.7% for the period ended
Jun’22.
In conclusion, as mentioned earlier, prevailing external environment poses some challenges.
However, thanks to the domestic consumption story, India is seen as a strong contender to
be the world’s fastest growing economy over the next few years. India’s digital economy is
going to play an instrumental role in this growth and is expected to reach around $800
billion by 2030. Notably, digital payments in India are expected to reach $10 trillion in
value by 2026 from around $3 trillion now. This presents a strong potential of growth for
credit cards industry. As we continue with our preparations to make the most of this
opportunity, we remain vigilant in the current situation. I would like to reiterate that, at SBI
Card, we have built a robust, reliable, and resilient business and we are committed towards
delivering value to our shareholders, employees, and customers.
Rutuja, now we are open to questions.
Moderator:
Thank you very much. We will now begin the question-and-answer session. The first
question is from the line of Anuj Singla from Bank of America. Please go ahead.
Anuj Singla:
Good evening, everyone and thanks for the opportunity. The first question is with regards to
the sourcing mix on the new accounts. So, we have seen a very dominant presence of Open
market. You did talk about some issues on the banking side as well as some recalibration of
risk appetite, can you please elaborate on that? Are we consciously going slow on project
Shikhar? And secondly, what does it imply for the credit cards going forward.
Rama Mohan R Amara: Yes, the share of Banca has come down in the months of June quarter. Generally also, the
Banca’s contribution, particularly in the month of April when it is a busy audit period for
the branches, the gateway branches which actually play a critical role in terms of sourcing,
they are preoccupied with audits. The month of April is always like that, where contribution
is low as Shikhar version works at certain intervals, and branches dashboards are operated
with the data. In the cycle there was a delay which has actually resulted in slight slowdown
in terms of sourcing, but the position got rectified in the month of July. So, now we are
seeing a usual run rate, a usual contribution from Banca channel. So as a strategy, there is
no change. We continue to look for a 50%-50% contribution from both Banca as well as
Open Market. Rather, when we were faced with a situation of slightly delayed or a kind of
lower contribution from Banca, we were able to ramp up the open market channel which
shows our resilience in terms of maintaining a monthly run rate of 300,000 which we
always articulated. So, there is no recalibration of risk as such, it is only like a tactical move
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and quarter two will reflect most probably the same contribution mix as we always
envisage.
Anuj Singla:
Okay got it Sir. The second question is regarding the cost of funding. Obviously, we have
started the impact; it has started to flow through in our P&L, when we look for the next
three quarters what kind of cost increase should we be factoring in?
Rama Mohan R Amara: As you know, 60%-65% of borrowings are short-term and when we call it short-term, we
have a different frequency at which they get reset. Our understanding and our estimation
says that a bulk of the impact will come in Q2 and unless and until again the external
benchmarks that is repo rate changes, there may not be further impact of the same degree in
the subsequent quarters. We feel that Q2 will reflect the full impact of increase in the cost
of funds. But at the same time, you would have seen the shift in the composition of assets,
where we are consciously increasing the share of EMI loans which has been steadily
increasing. The revolver has also started responding albeit in a very small way. We are
hoping that the share of interest earning net assets will continue to increase, and this will
help us to take care of or mitigate whatever the negative impact is there on account of
increase in the cost of funds.
Anuj Singla:
Okay got it, any quantification Sir, second quarter what kind of increase we can build.
Sanjeev Khurana:
The full re-pricing impact will come in Q2 and it will be in the range of 5.6% to 5.8%.
Anuj Singla:
Thank you very much.
Moderator:
Thank you. The next question is from the line of Dhaval Gada from DSP. Please go ahead.
Dhaval Gada:
Sir, congratulations on good set of numbers. I had three questions, first was relating to the
net card additions. So, we talked about your aspiration to have a 3 lakh net monthly card
addition. I just wanted to understand when do you see this sort of run rate achieving and
sustaining, any color that you can provide? Are we two three quarters away? any color
around that would be useful.
The second question is relating to revolver share. So, we have seen an increase in this
quarter. Just wanted to understand, so in terms of the sort of bottoming out of revolve share
is that behind us and given our incremental sourcing moving towards potentially higher
category of revolver customer base, do you see it gradually increasing quarter-after-quarter.
some color around that? your confidence on this upward shift that we have seen in the
quarter?
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And last question is relating to spend based fee. We have seen the T&E sort of spends come
back. I was hoping the spend based fee as a percentage of the spend also to start to move up.
They have been around 1.4% level, pre-COVID we used to be approximately 1.6% level. If
you could give some perspective around this? is it the new normal or we should see that
increasing? and what could drive that? Those are the three questions. Thanks.
Rama Mohan R Amara: As I said earlier, our initial idea was that the gross card issuance of minimum 300,000 per
month, that was always there and then gradually increasing within the risk appetite what we
have, and the capacity of the channels. Our intent was evident till the last quarter where we
ramped up the gross card issuance where it crossed 1 million. So, that effort will continue,
despite whatever small hit we have seen in the June quarter. The effort on increasing the
gross card issuance will be aided by the continuing expansion of the partnerships and the
new digital channel that we have launched for the end-to-end the digital channel for
sourcing, for NTB, this will also help. Of course, net growth is also a function of attrition,
we are taking a lot of strategies in terms of addressing the attrition. In month of July or
August, the master directions of RBI are coming into effect that can have some impact on
the attrition. Once this impact is absorbed, then definitely again the net growth will be on a
growth trajectory, that growth in the cards will be definitely increasing and the 300,000 net
growth continues to be an aspiration, definitely it will be. After a quarter we will be in a
better position.
With regard to revolver bottoming out, Girish can you talk about that.
Girish Budhiraja:
With respect to revolver, we have seen not only an increase in the asset, but this asset has
also come on account of number of customers. So, fundamentals look to be in place, from a
percentage of asset on the revolve portfolio which gives confidence that this is going to
sustain. The other good part is that we continue to see an increase on the term book which is
now up at 35% of the overall assets. If you look,in the last quarter, the interest bearing asset
has moved by 2% points up, to almost 61%.While we continue to get more interest-bearing
asset on our part and also focus on the quality of customers that we are getting in, so that
our future revolver book is built accordingly., Both the things are working in tandem, you
can see that from both the data points. That was on the revolver share.
On the spend based fee, you are right, while it will not go back to the original number.
Because during the COVID period, a whole lot of new categories of spends have got added,
which are utilities, insurance payments, fuel have increased, some of those categories are at
a lower interchange. However, from the point where we are, we are seeing the increase in
travel, in fact, in our investor presentation, this time we have presented that the travel has
also crossed the pre-COVID numbers. Travel, lodging, entertainment all those categories in
Q1 have crossed that and they continue to show very good growth. So, we should see an
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upward trend from where we are, maybe not at the original number of COVID but
somewhere in between it should lie.
Dhaval Gada:
Got it thanks and all the best.
Moderator:
Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go
ahead.
Abhishek Murarka:
Hi Sir, good evening and congratulations for the quarter. So, a few questions, in your
opening remarks you said that you have recalibrated some risk metrics to get more interest
earning assets. Can you just give some examples of what exactly you have done? That is
question one.
Question two is on the co-branding with Aditya Birla Finance. Can you share some details
in terms of, how it will work with respect to data sharing and what are the commercials of
the tie-up and how do you expect this to scale up in the next two to three quarters in terms
of let’s say card issuances?
And finally on commercial spend. you said, you ran down some B2B accounts what does
this mean? Is it a product that you are finding pressure on in terms of the profitability or is it
a group of corporates which is not remunerative? Can you please explain that? Thanks,
those were my questions.
Aparna Kuppuswamy: On the first point in terms recalibration, I think that is something we have been saying now
for the last two or three quarters. As our overall credit cost has started coming down, the
principle, we have been following is, to try and optimize our credit cost. Even on an
ongoing basis we are constantly looking at segments where we believe we can recalibrate
the risk appetite and that has been happening now, for the last two or three quarters and you
would see that even in terms of the number of self-employed that has gone up in recent
quarters. So, this is an ongoing exercise there is nothing specifically that we have done in
this quarter. A lot of these actions do start to bring in that kind of customers, who have a
higher propensity to revolve that’s all. I do not think you can change the risk appetite and
start getting in more revolvers, it is not that simple arithmetic.
Abhishek Murarka:
But in your estimation, is there a lead time or what do you expect maybe two, three quarters
and it could translate into some more revolve.
Aparna Kuppuswamy:
It is a question of, what are the actions that we can take and there are two or three sets of
actions that we have been taking. We have obviously reworked our risk appetite to start
bringing in more self-employed, second-tier salaried customers. We have also tried to bring
in some of the thin file customers with additional data because we now have rebuilt our
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models, we have access to alternate data so, we are bringing some of those customers.
There is a lot of other activity that is happening on the marketing side, to induce spend, try
and get more of the discretionary spends and things like that. So, it is a set of actions, we
have to wait and see how that pans out.
Girish Budhiraja:
On the Aditya Birla Finance, we tied-up with them and the model that we are going to use
there is, because they are also a regulated entity so, we have done a very detailed DRE
exercise with them, we have already qualified and selected certain set of customers where
we can give the card without taking any documents. We are intending to use our newly
launched straight through processing SBI CARD SPRINT that you would have seen, that
journey for these set of customers. So that, we are able to give the offer to these customers
and be able to get these customers. In this case it should be easier for us because Aditya
Birla Finance, being a regulated entity, we do not need to collect another KYC of these
customers so we are working at seeing whether in certain cases where we collect the KYC
or where we would not so that make even life simpler for the customer. So, that is the
model that we are going to use with Aditya Birla.
Abhishek Murarka:
What is the profile of these customers?
Girish Budhiraja:
They are basically asset customers of Aditya Birla Finance, which would have taken
various kinds of loans, offered by the Aditya Birla Financial Services.
On the commercial spends that you asked, it is not a specific product. On the commercial
cards, there are some corporates who do B2B spends or vendor payment spends or some
kind of statutory payments. Some of these cases, these spends go through various
aggregators and if the costing keeps changing or the pricing moves in a direction where it
becomes non-profitable. On review of some of these cases and some of these spends, we
saw that some of that spends was not in line with our expectations. For the time, we have
curtailed some of that and reduced some of that because, it is not only about the topline we
also intend to be looking at the profitability from these spends.
Abhishek Murarka:
Got it. Thank you.
Moderator:
Thank you. The next question is from the line of Bhavik Dave from Nippon India. Please go
ahead.
Bhavik Dave:
Good evening Sir. Congratulations on a good set of numbers. Sir couple of questions, one
is, you mentioned that the term loan book proportion is increasing. Just want to understand
what would be the average tenure of this book, at this point in time?
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Girish Budhiraja:
There are actually three portions of that, one is, a kind of a loan which is given on top of the
credit card limit, there the term is almost 33 to 34 months. On the spends which is
converted into term product, there, it is almost close to eight and a half, nine months.
Bhavik Dave:
And what would be the broad proportion if you are comfortable with? Of 35% , how much
of it would be more than like couple of years or 30 months.
Girish Budhiraja:
You can go through our ALM and have a look at that because there we declare that more
than 12 months I think it is there but otherwise we have not declared these specific
numbers.
Bhavik Dave:
Perfect all right no problem. Secondly, I see that you have come up with sprint offering that
is the end-to-end digital origination that we were planning, and we have started some bit for
the Banca customers and now I think this is more for the open market. I just want to
understand how the Banca experience has been and how do you think this can help us, by
making the on-boarding journey more efficient and cost effective, so, anything on that, that
you would like to highlight.
Pradeep Khurana:
Sure, so you are spot on and this is Pradeep answering on behalf of SBI Cards., Basically,
this new journey is a launch for the open market space as you are aware that for our digital
sourcing with respect to State Bank we already have an existing integration on similar lines
in the YONO App. Through the YONO App, accounts have already been coming for a
while, and there, the whole architecture is designed in a way that once the customer
consents, data is automatically integrated into our system., data gets picked up,
automatically gets passed over to us. There is however a KYC leg that currently we do even
for the Banca customers, that gets done on our side, but by and large the digital route for
those customers already exist, that is on the integration with Banca. What we are going to
do now is, since here we have integrated this whole app and launched it for the open market
space, this new app gives us a lot more capability so the first and the foremost is that the
user experience is pristine here, it is completely seamless, KYC is completely digital, what
we have also done is the decisioning on the account is real time as well as all the checks and
balances in terms of photo match which is done using artificial intelligence, we also do our
spot checks which are also completely online and net-net in approximately four to five
minutes in one single journey the customer can get a card online. Numbers have started
coming in on this new app, and some of the features here, which we are in an early stage on
the open market side, we will also bring on to the YONO platform, that is the separate
effort once the success is proven in the open market place. Some of these features that we
like will also get rolled out on the YONO side. In a nutshell, what I want to say is that the
path for our company moving forward is going to be digital centric this the new account
acquisition strategy is going to have a digital first approach and this digital first approach,
we will adopt both on the Banca side as well as on the open market side.
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Bhavik Dave:
Sure and last question is on the sourcing. I see that sourcing from tier three and above, it is
incrementally adding to almost 50% of our incremental sourcing which used to be 25%,
30%. Anything that we have seen here? Are the customers better? we have discussed this
previously on the type of spend that they do and the kind of revolves that they can generate,
but is there enough or is there lesser competition than the market? Do we have a more right
to win kind of a proposition with these customers considering the familiarity with the SBI
brand? or how does it work and what would be the economic like in the sense the cost of
acquisition would be similar or will it be lower for a tier three, tier four kind of customer.
That is about it. Thank you.
Girish Budhiraja:
Three-four things, I will tell you about tier 3, tier 4. Yes, the cost of acquisition is lower
because primarily we are sourcing through Banca channel in tier 3, tier 4, where the cost of
acquisition, which we have earlier also stated, is lower. The second point is that in those
cities State Bank of India brand is SBI Card brand, because SBI is mother Brand. SBI brand
is very strong, so the brand attractiveness and the pull factor is very, very strong. On the
consumer behavior side, what we have continued to see is that the online percentage even
though the spend is slightly lower than tier 1 city, but the online percentage because of
delivery of the large e-commerce players in the country is now easily there in almost all pin
codes, we see this 55% is almost similar in tier 3, tier 4, that behavior is being seen. The
spends at the Point of Sale (PoS), because the availability of Point of Sale as it increases in
tier 3, tier 4 we believe, that should also help increase the spend further. That is some color
on the tier 3, tier 4. The spend categories are usually the same, there is a bit of a difference
in terms of travel and lodging where the travel spends are slightly lower compared to tier 1
cities, but if you talk about primarily utilities, fuel and other non-discretionary spends, it is
broadly the same.
Bhavik Dave:
And the average spend would be what, monthly spends would be like half of tier 1, tier 2 or
like any proportion or any number that you would want to talk about like the reasonably
seasoned customer who is spending x in urban or tier 1, tier 2 will be spending at least 40%-
50% of them or lower.
Girish Budhiraja:
We have not given the exact breakup, but it is what I would say anywhere between 60% to
90% of, depending on the city.
Bhavik Dave:
Last question is the yields on the term book, or the EMI conversion book would be around
16%-17% or maybe lower.
Girish Budhiraja:
We have not declared the yield number item.
Bhavik Dave:
Okay Sir no problem. Thank you so much.
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Rama Mohan R Amara: It can be calculated to the portfolio in overall transactor, revolvers, and its overall portfolio.
Girish Budhiraja:
Actually, you can calculate it because you have the full base and we have given the
transactor, revolver and EMI breakup. The revolver is at the product rate of 3.5% per month
so the balance you can calculate.
Moderator:
Thank you. The next question is from the line of Param Subramanian from Macquarie.
Please go ahead.
Param Subramanian:
Thank you for the opportunity. My question is on incremental card volume market share.
From looking at card volume market shares, it is down about 100 basis points over the last
10 months odd. Is this something you are concerned about, and could this translate to spend
going forward? Or do you think this is more of a low value spend card being added by the
industry? This is something that we want to know.
Rama Mohan R Amara: One thing is, the gross card issuance of the industry has increased over a period of time. So,
obviously that has an effect, but irrespective of what others are doing, we always maintain
our stance of a kind of sustainable growth and looking at our return, risk appetite and
capacity of the channels. But the kind of numbers what we said when responding to other
questions around what the net growth target is we are aiming for, that should help us
actually in terms of arresting this decline and actually start gaining the share. This may be a
very temporary kind of situation, but we have plans to ramp up both the gross card issuance
and address attrition also in a meaningful way because our attrition will definitely be
slightly higher than the industry because we issue largely fee based cards as compared to
competition. So, that factor is always there but that can also help us in having a better
activation rate in the portfolio of cards. So, we will take all these things into account, but we
will strike a balance between the market share gain versus ensuring the sustainable growth.
Param Subramanian:
Got it Sir, thank you very much. If I could ask again related to that question, is there an
aspiration to be the number one player on a volume basis for SBI Cards. So, you obviously
have the parentage, the brand, the bank customer base, what is holding back SBI Cards
from being the number one volume card issuer in the country.
Rama Mohan R Amara: As I said, we have a strategy and we are aiming for improving the market share, so, that is
pretty much there. Definitely the kind of sourcing what happens from the Banca we also
revisit and always look for opportunities of maximizing it. But we are also mindful of new
master directive that puts a lot of responsibility on carding the right customer because if
there is any kind of miscommunication to the customer that may not result in any activation
of the card which anyway will have to attrite it after 30 days. So, we need to look at the
profile and we need to do the starting under targeting the customer in the right way. So,
definitely increasing the market share is on the cards, and we will do it in a calibrated way.
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Param Subramanian:
Got it Sir, thank you very much, all the best and congratulations on the performance.
Moderator:
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal.
Please go ahead.
Nitin Aggarwal:
Good evening, Sir and congrats on good set of results. So, two questions firstly again
around the borrowing cost and margins. So, in respect to that besides the mix of like
revolver and EMI customers which has increased this quarter how much flexibility do we
have to increase the interest rate for our customers, mainly the EMI customers so as to
protect our margins?
Rama Mohan R Amara: As you know the EMI loans are fixed rate loans to the extent there is a healthy
disbursement so, it gives us an opportunity for each disbursal to price it appropriately. Of
course, we will look at our cost of funds and we will look at what is ideal pricing, and of
course we also look at what are the offering from the competition, but it offers an
opportunity with each new disbursal to pass on some increase to the extent market absorbs.
The other effort will be to increase the share of interest bearing NEA overall, while
ensuring that the revolver does not reduce from the current level that will also help us in
terms of increasing the portfolio.
Nitin Aggarwal:
And secondly like on the subscription based fee, if I look at on a per card basis this is
trending downwards though not any major decline but for last two years also there is a
down trending, that is there on the subscription based fee. So how do you really see this
playing out in the medium-term, and any new products that we are looking to launch to
counter this trend?
Sanjeev Khurana:
Subscription based fee is primarily our membership fee and that is linked to the new
accounts which we are sourcing and on a per card basis it would be stable.
Nitin Aggarwal:
Sorry Sir I missed you hear; can you repeat that please.
Sanjeev Khurana:
Subscription based fee generally includes our membership fees, and on per card basis it will
be stable.
Nitin Aggarwal:
Maybe I see a small decline, a single digit though but it has been around like if I look at Y-
o-Y, it is a 4% decline, and in prior year very marginal decline is there. Is it to do with the
mix where you are originating more from the tier two, tier three cities?
Sanjeev Khurana:
So that is linked to, there are spend based reversals as well for our customers, as they touch
the spend based limits they do not get to pay the fees. So, the spend based reversal
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percentage keeps going up as the customer profile improves as the membership fee on the
renewal side will start coming down.
Nitin Aggarwal:
Right got it. Thank you Sir, thanks so much.
Moderator:
Thank you. The next question is from the line of Pankaj Agarwal from Ambit Capital.
Please go ahead.
Pankaj Agarwal:
Good evening Sir, do you think RBI allowing credit card on UPI rails to benefit to the
industry.
Girish Budhiraja:
RBI has allowed RUPAY Credit Cards to be used on UPI. As of now if we look at it, we
have almost more than 1 million plus cards already on a RUPAY platform and we are one
of the largest issuers of RUPAY cards in the industry. So, we believe that there are three,
four benefits which are very clearly there. One is, the whole acceptance fees of credit cards
into the P2M space for UPI merchants that should increase and these are the merchants
where if the acceptance happens we would get incremental spend from the same customer.
One can get more share of spending which the customer is doing on UPI, can shift on credit
cards specifically for rewards because rewards another value proposition benefits are there.
Market penetration increases we also as was being mentioned earlier in tier three, tier four
cities UPI is already very well penetrated and, in those cities, we are very strong and we are
issuing RUPAY cards there. So there the customer starts using cards we should be able to
see increased spending patterns there. And also in any case, if the customer has one
payment mechanism and he uses it for all the areas to make the payments that increases its
loyalty also. We believe that these are the three, four areas where the benefit is there, there
is obviously a discussion around what would be the commercials, what would be the
interchange and MDR which would be there, so that discussion NPCI is already having, that
discussion with all the member banks and you would have read the interviews also of NPCI
CEO and MD. So, they are already in discussion, and we believe that something which is
right should happen in due course.
Moderator:
Mr. Agarwal there is a lot of background disturbance which is coming from your line may I
request you to mute yourself when management is answering your question.
Pankaj Agarwal:
Somewhere it was mentioned that on small value transactions there might not be any kind
of MDR. So, in that context do you think that there would be some cannibalization where
merchants shift some of the credit card transactions to UPI. You know, India is a Jugaad
country, right? where merchants can play their game.
Girish Budhiraja:
You are right, and these are the topics of conversation which are actually precisely
happening with NPCI that, how the mechanism has to be done, if there are benefits which
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has to be given to the merchants for certain categories, which are smaller merchants, how
will that be monitored what will be the control mechanism to what level what ticket size
that transaction should be allowed. There are these questions which are there, and I think
that is what NPCI and other banks are discussing before they come to the final decision.
Pankaj Agarwal:
One last question, in the last cycle your cost of funds had gone up to 8%, somewhere
between 8% to 9%. Do you think it can go back to those levels, or structurally your liability
makes the change so that it will remain around from the current rate.
Rama Mohan R Amara: Difficult to predict the trajectory of interest rates. While as of now there is upward bias
definitely, because of inflationary pressures, but over a period of time what we have done is
and you would have seen that we have been increasing the share of long-term so we have
been looking for opportunities to lock into long-term at a right stage. So, this journey will
continue, even though it is slightly costly as compared to short-term, so this will help. And
of course, to the extent even if there is an increase in the cost of funds to the extent we are
able to increase the share of overall the interest bearing NEA and to the extent the revolver
helps and I think that can act as a mitigant.
Moderator:
Thank you. The next question is from the line of Karthik Chellappa from Buena Vista Fund
Management. Please go ahead.
Karthik Chellappa:
Thank you for the opportunity Sir and congrats on the quarter. My question again is on this
UPI on credit cards for which the negotiation is still underway by NPCI. I am just trying to
get a sense maybe this is a bit of a theoretical question. how much of the unit economics
actually hinges on the MDR, is that something which the industry is quite particular on. Or
to ask it in another way if the MDR were to be lower would you still go ahead with the
product and tinker other cost elements to keep the unit economics the same? or do you still
feel that you need a certain degree of MDR for the product to be successful?
Girish Budhiraja:
You need MDR and there are three reasons for it. The first reason for it is, credit card is a
up to 52 days of credit free period product. So, there is a cost of funds which is when the
customer spends on an average there is a cost of funds which as an issuer we incur. The
second thing is, a customer uses credit card, also because of the rewards and the benefits
and the value proposition which the customer gets. So, there is a cost of value proposition
and there is a cost of rewards also. You can tinker with it if there is a high premium end of
it where you get higher interchange then you can give higher rewards to those customers. At
a lower end you can give lower rewards and you can tinker with that, but not having
rewards at all and having a just a base payment product will not encourage the customers to
have either loyalty or spend large ticket items on the product. That is the second piece
which is critical. Thirdly obviously it is a credit product so there is a while the credit loss
you can still look at in terms of from the interest income and other things but there is a set
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of fraud loss also which happens which is borne at the initial stages, even though that is
very low because of the RBI guidelines of second factor authentication and generally a very
secure environment of chip and pin. It is very low but there are those costs which are
different in credit card compared to any other simple payment product where the money is
going from your bank account.
Karthik Chellappa:
Got it. Just one clarification to the point that you made earlier to a question on incremental
market share, which has actually slipped quite a bit. What do you think will take for SBI
Cards to possibly reach a 400,000 or a 500,000 cards issuance per month? Do you think it is
a technology back end which you still need to strengthen in terms of capacity, or do you
think it is underwriting appetite which will improve as the economy actually improves
because the inherent demand seems to be very high?
Rama Mohan R Amara: It is the combination of everything, and we have been making efforts. Of course, declining
credit cost which we have demonstrated over a period of time definitely gives us the
maneuverability to experiment more with some pilots, which we have been doing. We also
talked about having the ability to consume alternate data for underwriting NTC and NTCC
customers definitely that is helping. And of course, technology-wise NTB journey is
already there, this is only for the organic inflow, this platform has to be extended now to the
entire partner ecosystem. That will also help us in terms of ramping up the numbers but at
the same time at a reduced cost as compared to the current business model. It was a
conscious move, I mean technically you can even get those numbers even in the current
business model, but the cost of acquisition will be high and the incremental returns may be
less so that is the reason we are making calculated moves.
Moderator:
Thank you. The next question is from the line of Rahul Jain from Goldman Sachs. Please go
ahead.
Rahul Jain:
Thank you and good evening, everyone. Just to start with, first on the spends per card. In
retail which we understand is about Rs.130,000 per annum which seems to be the highest
that we have seen. Just wanted to understand, where can these spends go from here
particularly in context of the income that your customer would be earning? So that is
question number one. Question number two is, again going back to the market share point,
if the market share is incrementally coming under pressure then what levers do we have to
keep increasing the spend, if in case these spends per card starts to kind of plateau out. So
those two our question around just to understand the movement forward in terms of spends
market share.
Girish Budhiraja:
You are right. First of all on the spends per customer. Now, we have been stating that the
spend per card or spent per customer has actually been increasing over a period of time.
During COVID it went down because certain categories were not available, but we had
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stated at that time also that those categories have come back and the new categories, the
existing categories like travel, lodging, hotels, they were bound to come back at some stage
when the normalization happened and now, they have come back. So, we are seeing that
increase spend which is happening. The second thing is this digitization process is actually
picking up further steam. You see more and more new categories coming up into the fore.
There are school and education as a category is fairly decent now, rentals which were not
there let us say a year or year and a half back, is a fairly large category now, the utility bills,
insurance payments, so you will have deeper penetration because when these categories
come, the first thing, is that not everybody picks up those. Of 14 million customers that we
have, not everybody is spending on all the categories. We keep increasing the depth of
categories within our customer base to get their spend increase. So, this is a standard-
segmented-offers & campaign that we continue to do to get that piece. On your question on
market share, you are absolutely right. If the market share on cards does not increase over a
period of time, it will put pressure on the market share on spends also. Because both of
them typically are in tandem and overall spend share will work on number of cards and the
spend per card, it is a standard mathematical formula. So, the first step here is to get the
market share on the card space to increase, and that is what we are working on. As stated by
our MD Sir, that while we are working in a calibrated fashion, but the numbers now have a
straight through processing, which we have launched for our open market. We are also
trying to link it to our Banca sourcing so that we are able to get benefits there. This should
be completely incremental, new co-brands is completely incremental which is going to
come and in the existing piece we are working on a lot of productivity increase measures
and efficiency increase measures so that we are able to source at a lower cost or at least
keeping the cost same get the productivity up and be able to source more number of cards.
So those things are in progress and we are seeing very good results in the month of June and
we believe that those should continue further growth over a period of time and this growth
of market share should come back to us, that is on the cards piece. While on the spends
piece of it, there is a corporate card piece which we have always talked about we want to be
very careful where we go there because there are those two portions there. Retail has been
running strong. We want to continue to keep the corporate card also in the play but still at a
profitable and at least a marginal profitability level should be maintained. So, these are the
two portions on which the work is happening.
Rahul Jain:
Thank you so much that was very helpful. Just to follow on, one is in terms of the spends.
When you look at these spends vis-à-vis the income that your customers/spenders would be
earning, what would that be any sense? can we get what would the average annual income
of your typical customers, who is spending 130000?
Girish Budhiraja:
Connecting everything to income here does not work because, the income is important, for
example in tier one cities it is actually the consumption spending pattern which is more
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critical. when we look at the customer database or when we look at some of the customer
profiles while credit limit which is being set on the basis some bit of income estimation and
increased or decreased, the income estimation done by the credit team. Spends in various
categories, for example everybody today spends on fuel especially if they have a credit card
they will spend on fuel whether it is a two-wheeler or a four-wheeler or otherwise the
quantum will be different. You approach it from a spend category perspective, and as we
have earlier seen, we look at it from a non-discretionary and discretionary. Non-
discretionary spend people will do, people will go to departmental stores and buy their
regular groceries whether they buy it on the card or cash is a choice which they have. We
have still not reached that level that is the monthly income the spends is crossing the
monthly income by a large margin that those things have not happened.
Moderator:
Thank you. The next question is from the line of Adi Jain from Ampersand Capital. Please
go ahead.
Adi Jain:
Sir, congrats on a good quarter. I just had a question on the NIMs. I noticed that our net
interest margin has fallen from 15%, 16% pre-COVID to currently 13%. I just wanted to
know what could be the reason for that? One thing I noticed was that our revolver share has
fallen. So is there any particular change in consumption pattern or customer behavior
towards revolvers are you noticing any of that and what could be a sustainable NIM range
for the medium-term.
Rama Mohan R Amara: You are right, the decline in NIM is mainly attributable to lower share of a revolver but the
way to look at is, how we have been managing the cost overall even when the revolver is at
25%, 26% still we are able to generate a return metrics of return on average assets of 7%
and ROE of 30%. The revolver to consumption, Girish, is there any linkage, if any?
Girish Budhiraja
No.
Rama Mohan R Amara Of course, there will be some tendency like when they are buying a consumer durable item
or otherwise make a big ticket purchase like a travel etc. there is a better propensity to
revolve. But barring those categories linking it directly to consumption is difficult. The
revolver is more to do with the ability to pay in full, if it is not there, obviously the
customer will choose an option of, if it is a short-term kind of cash flow mismatch the
customer will think like a month or two they will rollover and they will pay or if they are
comfortable paying over a period of time they will opt for EMI kind of loan.
Moderator:
Thank you. The next question is from the line of Deepak Sonawane from Haitong
Securities. Please go ahead.
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Deepak Sonawane:
Thank you Sir for the opportunity and congratulations on a good set of numbers. Just
wanted to understand the profitability of online spends versus offline, that is spends at POS.
If you compare the profitability in terms of net profit per spends. On blended basis, we are
reporting around 0.8% to 0.9% and if you split that profitability base between the online
spend and offline can you give us some color on this?
Girish Budhiraja:
Profitability from the category of spends does not vary, it is dependent more on the category
of customers that we are getting. Premium customers with high spends are more profitable.
On MDR front, the interchange that we get, whether it is online or offline, it actually
depends on the kind of spends. For example travel, if you buy it from a Point of Sales or
you buy it online, we get the same interchange, the variation is not there. So, from
interchange perspective, there is no difference in profitability. It is actually more customer
dependent rather than online or offline.
Moderator:
Thank you. The next question is from the line of M B Mahesh from Kotak Securities.
Please go ahead.
M B Mahesh:
Good evening Sir. Just two questions, one, how much of your incremental cards or
outstanding cards would be on the base of a secured credit card, backed by a fixed deposits
or any other lien-based instruments.
Rama Mohan R Amara: There are numbers, but it will be insignificant. It will be very small.
M B Mahesh:
We have seen some competition introducing this, it being a very good source of getting into
customer segments which are tougher to crack from an income segment, what is your sense
of this as a product?
Girish Budhiraja:
We did this product for two, three years, the attrition rates are very high even within the
first year because customer is marginal and his need for breaking the FD can happen at any
point of time, between three months to nine months. We saw a whole lot of them wanting to
break their FD after six to nine months. The life of the customer with the product was not
very long hence automatically the profitability gets impacted majorly because you incurred
a good acquisition cost upfront and if the customer does not stay longer with you, the
opportunity to have revenue from that customer is limited.
M B Mahesh:
Perfect, and second question Sir, this is to Aparna madam. Madam, the 450 Crores of
provisions that you are doing there, this still continues to remain of customer base which are
pre-COVID or these are a business as usual kind of a credit cost, that we have hit now of
the incremental spends that is coming in.
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Aparna Kuppuswamy: Now the credit cost is largely BAU. If you look at our ECL rate that we have given out, it is
at 3.3%, which is actually lower than the pre-COVID rate. RBI RE book is almost finished,
we have got 150 Crores of that left. There is just 31 Crores of discretionary reserves, so
whatever you see now is BAU.
M B Mahesh:
In a sense these are customers who have originated let us say pre-COVID or these are let us
say customers who are still coming out of the incremental book that you are originated I am
just kind of going in that direction of the question.
Aparna Kuppuswamy:
I do not think it is the question of whether they have been over pre-COVID. This is the
standard expected credit loss model that we have, that looks at seven year data, and we are
able to project what would be the losses. For the high risk segment, specifically the RBI
RE, we had made specific provisions, that is now finished. Whatever you see is a standard
provisioning model now. Some of them could be in recent times, some could be older but
this is the BAU model now.
M B Mahesh:
Thank you for this.
Moderator:
Thank you. The next question is from the line of Saurabh Mehta from East Lane Capital.
Please go ahead.
Saurabh Mehta:
Thanks for the question. I have two questions, First thing is, I wanted to understand volume
wise the mix of the corporate and retail spend. How much percent of our cards are corporate
and retail? And follow-up to that was, what is the retail spend per card and how long do you
think our retail customer could reach let us say a 2 lakh spend and what will be the driver
for that?
Girish Budhiraja:
In corporate, the number of cards is very minimal, we would not have more than 50000,
60000 or so. It is basically a large spend coming on one product. When we say 14 million
plus cards it is essentially retail cards that we are talking about. We have declared the retail
spends also on quarter-by-quarter basis and the average spend you can calculate. You talked
about a particular number, all we can say and mentioned earlier also that different new
categories have come up. We have seen the increase in the customers spend per card, and if
we go by vintage analysis, newer customers take some time to build their spend. The Spend
of some of the older vintages would be closer to that number. As we are adding more cards,
those new cards initially their spends are lower, they build up over a period of time, in a
period of 18 months to 24 months. So this is a continuous cycle, because customer also gets
comfortable with the product, we also educate them, we also tell them about various offers
and various categories, once they become start using the product, they use it with multiple
categories, it is a progressive exercise that happens. If you see customers who were pre, say
2015 or so, a whole lot of those customers would have already reached that number. So, it is
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average, is more about how weighted average move. What you today as a number, is the
weighted average of the overall portfolio.
Moderator:
Thank you. Ladies and gentlemen this will be the last question which is from the line of
Rohan Mandora from Equirus Securities. Please go ahead.
Rohan Mandora:
Good evening Sir, thanks for the opportunity. A data keeping question that I had was, in
terms of the new categories which have come up post COVID what would be the
contribution and total spends from them? Or where the use cases where the spend
momentum has improved.
Girish Budhiraja:
If I take rentals, insurance bill payments and utilities, these categories can contribute
anywhere between 10% to 20%. On a month-on-month basis, there will be variation
because certain categories like insurance is more skewed towards March versus some other
month. So monthly variations will be there but that is the range.
Rohan Mandora:
And what will be the difference in the spends for active card in Banca versus non-Banca
and also the revolve rate.
Girish Budhiraja:
Spend per active card in Banca versus non-Banca is almost similar. In Banca, we have to
work slightly more towards getting the activity percentage of the customers active to be
higher. As the customer starts using the card, fortunately starts using at almost the same
level. It is about getting more number of customers to start using the card and use it fully,
and use it continuously in a month, because we want our customers to use the card every
month.
Rama Mohan R Amara For the revolve rate in Banca, it is slightly lower as compared to open market. But you also
have benefits basically by way of having access to the operating account, so for collection
and recovery, you do not spend that kind of cost and automatically you will have a benefit
of lower delinquency/credit costs. We need to look at overall basis, while it may not revolve
it will also not lead to complications downstream and in terms of collection and recovery.
Rohan Mandora:
Sure, and lastly this spends which are getting converted into EMI what will be the average
ticket size in that like what kind of spends averages gets converted into EMI some ballpark
range.
Girish Budhiraja:
It is around 20,000 to 25000.
Rohan Mandora:
Sure Sir, thanks a lot.
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Moderator:
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to
hand the conference over to Mr. Rao, MD & CEO of SBI Cards for closing comments.
Rama Mohan R Amara: I would like to thank my colleagues at SBI Card who have been the drivers of our success
and have helped us achieve growth and innovation, irrespective of the environmental
conditions. I would also like to thank our shareholders and business partners for their
continued faith on us and their staunch support. I would like to reiterate that as an agile and
adaptive organization we will take all measures to safeguard our business while pursuing
sustainable and profitable growth. Stay healthy and safe. Thank You!
Moderator:
Thank you. On behalf of SBI Cards & Payments Services Limited that concludes this
conference. Thank you for joining us. You may now disconnect your lines.
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