SBI Cards and Payment Services Limited has informed the Exchange about Transcript of Earnings Call held on April 28, 2023
May 5, 2023
The BSE Limited Corporate Relationship Department. Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400 001
The National Stock Exchange of India Limited Exchange Plaza, C-1, Block G, 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 4O'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 April 28, 2023 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,
Tel .: 0124-4589803
Registered Office:
12th Floor, Block 2, Bui lding 3,
Emai l: customercare@sb icard .com
Unit 401 & 402, 4th Floor, Aggarwal Mill enn ium Tower,
DLF Cyber City, Gurugram - 122002,
Website: sbicard.com
E 1,2,3, Netaji Subhash Place, Wazirpur, New De lhi - 110034
Haryana, India
CIN - L65999D L 1998PLC093849
OSBI Card
“SBI Cards & Payments Services Limited
Q4 FY’23 Earnings Conference Call”
April 28, 2023
MANAGEMENT:
MR. RAMA MOHAN RAO AMARA – MD & CEO MR. GIRISH BUDHIRAJA– CHIEF SALES AND MARKETING OFFICER MS. RASHMI MOHANTY – CHIEF FINANCIAL OFFICER MS. NANDINI MALHOTRA – CHIEF CREDIT OFFICER
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Ladies and gentlemen, good day and welcome to SBI Cards and Payments Services Limited Q4 FY ‘23 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 star then zero on your touch-tone phone. 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.
Rama Amara:
Thank you, Yashashri. Good evening, everyone! I am pleased to welcome you to the Q4 and
FY23 earnings call. I really appreciate your presence today.
As you would know, while global economy remains uncertain due to many factors, including
geopolitical ones still persisting, it seems to be inching towards improvement with IMF
predicting growth rate bottoming out in 2023 to 2.8% before rising to 3% in 2024.
Amidst this, economic activity in India remains resilient. The real GDP growth expected to be
7% in 2022-23, as per RBI. Both PMI Manufacturing and PMI Services remain robust in March
2023 at 56.4 and 57.8, respectively. Aggregate demand conditions remained resilient in Q4
2022-23. According to 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 non-essential spending. And, more than a third of
the households expect a rise in non-essential outlay over the next year. This is a good sign for
consumer demand and discretionary spends.
Apart from its comparative economic resilience during these times, India is also being hailed as
a frontrunner when it comes to digital payments. This is true when we look at aspects like
innovation in payments, the pace of its adoption amongst populace, 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 2026.
Credit cards too continue to ride this digital payments’ growth wave. Credit cards base grew
from over 73 million in March 2022 to over 85 million in March 2023. This is despite the closure
of around 12 million inactive cards by the industry. Card spends have also increased significantly
by 28% from Rs 1.07 lakh crore in March 2022 to Rs 1.37 lakh crore in March 2023 – the highest
ever monthly spends for the industry. Cards spends continue to remain over Rs 1 lakh crore for
last 13 months with e-commerce contributing to a significant share in spends. It is interesting to
note that in FY23 the industry saw highest ever annual card spends at Rs 14 lakh crore plus. In
FY23, the industry saw the highest festive season card spends during October at Rs 1.29 lakh
crore and a strong winter holiday season added to increased travel spends. This clearly
demonstrates the robustness of the demand and usage for credit cards.
In fact, the past year has been a pivotal year for the industry, with many significant changes to
the business model that have set the tone for future of credit cards industry. The industry has
largely adjusted to and incorporated these in a seamless manner during the past six months and
is now ready for the next level of growth. I would like to reiterate my confidence in India’s credit
cards market potential. The significantly underpenetrated market offers ample growth
opportunities.
Let’s now look at SBI Card’s Business Overview in FY23.
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I am proud to say that SBI Card was successfully able to navigate through the year and register
a robust business performance demonstrating the resilient and sustainable business model that
we have built over the years. As always, we continue to create value for our stakeholders and
am pleased to share that we declared an interim dividend of INR 2.5 per equity share for FY23,
in the month of March 2023.
Throughout the year, we put focused efforts on three 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 5,202,000
total new accounts in FY23, which has been the highest ever during a financial year. In FY23,
our new accounts grew by about 46% vs FY22. During Q4 FY23, we added 13.71 lakh new
accounts, at a growth rate of 37%YoY. We continue to focus on adding about 900,000 to 1
million cards per quarter on net basis and in line added ~900,000 cards in Q4. Our cards in force
stood at 1.68 cr in Q4 FY23. We continue to be the second largest credit card issuer in the
country and our CIF market share improved by 100 bps to 19.7% during FY23. Our spends have
also seen new heights in FY23. SBI Card saw the highest-ever retail spends in FY23 at over Rs
2 lakh cr, which is a 41% increase over FY22. Our card spends in Q4 FY23 stood at Rs 71,686
cr with 32% YoY growth and this is the best-ever quarterly spends at SBI Card. Out of this retail
spends contributed over Rs 55,500 cr with 33% YoY growth in Q4 FY23. Again, the best quarter
for us in retail spends. It is noteworthy that our retail spends per card has also increased by 9%
YoY in Q4 FY23. On that note, I am pleased to share that we are no. 2 position in the spends
market share.
During Q4 FY23, spends growth, on QoQ basis, have been driven by growth in categories like
departmental stores, health, utilities, education, consumer durables, furnishings & hardware, etc.
Travel, entertainment & restaurant category also saw good growth. In fact, Q4 FY23 has been
the first quarter in last 3 years to surpass the travel spends momentum seen in Q4 FY20. Online
retail spends continued to grow in FY23 reaching at 56.9% share of total retail spends. Our
continued robust business momentum also helped us register healthy financials in FY23.
Our total revenue stood at Rs 14,286 cr and has grown at 26% YoY during FY23. Our revenue
from operations has seen 28% YoY growth in FY23. Our receivables continue to increase
steadily. Receivables at 40,722 cr. have grown by 30% March 2023 as compared to Rs 31,281
cr in March 2022. The share of interest earning assets has improved to 61% in March 2023 as
compared to 59% in March 2022. In FY23 SBI Card has achieved a PAT of Rs 2,258 cr,
registering a significant 40% growth over FY22.
SBI Card undertook some significant initiatives on the product side during FY23:
We further expanded our core card portfolio and added CASHBACK SBI Card, a clutter-
breaking product. Since its launch, the card has seen very encouraging response from the
consumers. We launched a new co-branded card Aditya Birla SBI Card in partnership with
Aditya Birla Finance.
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We have been working on several initiatives in strengthening our acquisition channels and
enhancing customer experience. Technology has been playing an important role as we bring
these to fruition.
SBI Card SPRINT roll out - SBI Card SPRINT an end-to-end digital acquisition channel, has
been a significant initiative to be launched during the year which has made enrollment for
customers easier, seamless, faster and instant. This allows the customers to get a card in just 5-
7 minutes.
Digital KYC enhancement - We have launched several initiatives to digitize the KYC process
across the customer journeys to enhance security and convenience for our customers. Multiple
modes, e.g., Biometric eKYC, Digilocker, Video KYC etc. are used for customer ease. It is
noteworthy many such efforts are helping us in rationalizing the cost of acquisition, thus
bolstering the business fundamentals.
We are excited with the opportunity from the linkage of Rupay cards with UPI. Access to a
larger merchant and hence customer base is good for the industry players. We plan to roll out
the UPI and Rupay linkage over the next few months.
Speaking of business viability, it is important to note that a higher customer spends active rate
is vital and at SBI Card our spends active rate has always been healthy at 50%, including FY23.
We continue to have a full-strength and highly capable senior management team to lead the
company towards new phase of the growth journey.
I am proud to share that this year too, our all-round efforts have been duly recognised. SBI Card
has earned various prestigious recognitions in different areas. For instance, ET Best Brands 2022
award, Stevie Award for Customer Service, and Golden Peacock National Training Award for
excellence in training & development initiatives.
Coming to the financial performance in Q4 FY23 & FY23.
Our total revenue in Q4 FY23 has been at 3,917 cr. registering a growth of 30% YoY. In Q4
FY23, our revenues from operations have been at Rs 3,762 cr with 32% YoY growth.
In Q4 FY23, our PAT grew at Rs 596 cr. registering a 3% YoY and 17% QoQ growth
respectively.
In FY23, as expected, owing to consecutive interest rate increases, our cost of funds has also
witnessed significant increase. As we communicated last quarter, our COF increased by 39 bps
in Q4 over Q3. We were able to minimize the impact on NIM and our NIM for Q4 is only 5 bps
lower 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% vs 61.9% in Q3 FY23, with spends expenses being lower this quarter.
On asset quality, Our NPA increased marginally in Q4. GNPA stood at 2.35% as of Q4FY23.
Our Gross Credit Cost increased to 6.3% in Q4FY23. We revised the model estimates this
quarter which resulted in a one-time impact of 20bps on the credit cost. Adjusted for that, our
gross credit cost would be in the range that we have shared always – 5.8 to 6.2%. We have
identified a subsegment from the legacy portfolio that has contributed to higher slippages in last
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few quarters impacting the NPA and write-off numbers. We have taken portfolio action and
expect that with actions taken, we will be able to address the issue. The new acquisition from
2020 vintage onwards is behaving as per expectations in terms of delinquency.
Our profitability ratios also continue to improve. In FY23, Our ROAA increased to 5.6% vs
5.4% in FY22. In Q4 FY23, it has been at 5.4%. During the year, our ROAE has also seen an
increase, reaching to 25.3% vs 22.8% in FY22. In Q4 FY23, ROAE has been at 24.6%.
In Conclusion, India remains resilient, and the domestic consumption remains encouraging. At
SBI Card, as always, we have maintained an agile approach and taken well-calibrated measures
to ensure that the company remains on the sustainable and profitable growth path. Interest rates
remain elevated; however, these have been factored in, and are likely to stabilize from here. With
such growth momentum and most key policy measures too now largely in place, the credit card
industry is likely to witness sustained growth momentum. I would also like to share that this
year SBI Card will be celebrating 25 years of its immensely successful journey. We look forward
to celebrating this with all our stakeholders. While we look at the last 25 years journey with
pride, we believe that the future is much more promising.
So now we are open for questions.
Moderator:
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes
to ask a question may press star and one on their touchtone telephone. If you wish to remove
yourself from the question queue, you may press star and two. Participants are requested to use
handsets while asking a question.
Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have
a first question from the line of Mahruk Adajania from Nuvama. Please go ahead.
Mahruk Adajania:
Good evening, sir. My first question is on credit cost. You already explained that there was a
one-time impact of change in ECL assumption. If you could elaborate on the change. And also,
in general, for the industry, the revolve rates have come down a lot post-COVID. So why are
credit costs still sticky? Is there a scope for Credit Cost to come down because if the revolvers
are declining so much, then credit costs should also be lower, is the general sense?
Rama Amara:
This one-time adjustment with an impact of 20 basis points is in terms of strengthening the ECL
model where we stress the model and based on the current macro-economic factors, we further
modified the model which has resulted in around INR20 crores kind of impact in a quarter. In
annualized terms, it works around 20 basis points. In fact, if you adjust the credit cost for this 20
basis points, it's around 6.1% which is at a higher end of the spectrum what we have given. I
talked about a broad 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, EMI loans, current economic
conditions, the kind of environment in which we are operating and the recovery culture, all that
stuff. So, we are at a higher end of the spectrum. As I communicated earlier, we have identified
the segment very clearly, we have been taking portfolio actions, we are expecting that credit cost
will have a trajectory of coming down in the next few quarters. It will come down.
Mahruk Adajania:
Okay, sir. Thank you so much.
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Moderator:
Thank you. We have our next question from the line of Karthik Chellappa from Indus capital
Advisors, Hong Kong Limited. Please go ahead.
Karthik Chellappa:
Two questions from my side, sir. Over the last few quarters, you 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 Spend Share, which is almost close to 1.5% now, that's almost at a nine
to ten quarter high. So, given that we have got really good momentum on the volume side, why
is it not reflecting in spends yet? Is it a reflection of the quality of customers that we are getting
either geography-wise or self-employed and salary-wise? And at what point of time do you think
this difference narrows down?
Rama Amara:
While I will respond to your query, Girish also can supplement. One thing is, you know the
spend comprise, both retail and the corporate spends. So, we have seen the kind of volatility in
the market share in terms of the spends. Whenever the corporate card spends move from one
place to another, it has a significant bearing on the spend share. So being mindful of this and
also being mindful of the fact that it is only a top line, it doesn't add much to the bottom line, but
it can potentially bring a risk. We have been playing a very calibrated game here. That's the
reason our corporate card spends is actually range bound, its 22% to 25% of our overall spends.
But with regards to new issuance, you have also commented about robustness in the volume. As
you know, it takes some time for the customer to start using the limit fully. They may start with
their smaller transactions to begin with, but the moment they experience the benefits of using
the card, they will start using it for discretionary spends, etc. And then you can see a large-ticket
transactions. In as much as the volumes have come only post-COVID, after 2020, I think there
is a catch-up here. In terms of being equal to the portfolio, it will take time for the new intakes.
Anything you want to add, Girish?
Girish Budhiraja:
Karthik, in the new customer acquisition that we are doing, these days because of the RBI
guidelines, you have to keep the customer active. And if the customer is inactive for more than
12 months, in any case, that customer gets taken off your portfolio. 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’ active
rates are also higher in terms of let's say two months, three months, four months active rates, so
they are also higher. So, we don't see an 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
spends. So, there will be some banks which will target a higher corporate versus retail mix. So,
the shares will look very, very different. When we check, because there are other sources through
which we check, we see that average retail spend of ours is similar to the industry number.
Rashmi Mohanty:
These details are given on the slide number 8 in the deck. You can see that our Q4FY’22 average
retail spend was INR124,000 and it has gone up to INR136,000 for Q4FY’23. So, there is an
increase that you can see already in the retail spend per average card. Since a lot of sourcing for
us has happened in the last one and half year, two years, there is a bit of catch up as well which
should start reflecting. But already we are seeing the benefit of the spend going up in metric on
spends per average card.
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Karthik Chellappa:
Got it. This is very useful. My second question is basically on the new RBI direction on pre-
sanctioned credit lines through banks using UPI. Now although the details are yet to be unveiled,
is there any thought process on how it is going to be impacting credit cards?
Girish Budhiraja:
As you rightly said that there are guidelines still fully yet to come. But these kinds of products
are already available. So, people were already giving, because UPI is essentially in a way if you
see for a debit card to make a transaction online, that model is there. And OD 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.
Karthik Chellappa:
Got it. Okay. That's it from my side. I will come back in the queue for more questions. Wish the
team all the very best for the next year.
Moderator:
We have our next question from the line of Rohan Mandora from Equirus Securities. Please go
ahead.
Rohan Mandora:
Good evening, sir. Thanks for the opportunity. I just wanted to understand the nature of slippages
that have happened in this quarter. What is the vintage of the customer and is it coming from
salaried or self-employed, some colour on that? Second is that if you look at the originations,
they have picked up in a self-employed category in the last two to three 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?
Thanks.
Rama Amara:
With regard to the vintage, as I clarified in my speech as well, the new vintages are holding good
in terms of whatever expectations we had, in terms of every broad delinquency band and an ECL
kind of assumption, they are behaving normally, there is no issue around that. But in the legacy
vintages, we did identify a small customer base, which was showing a higher delinquency.
Obviously, that was resulting in a higher flow rate and then higher NPA and eventually leading
to higher write-offs. This segment was identified. There is nothing than can be pointed out, this
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 weightage for the recent vintages increases
and the actions taken on this particular segment shows the results, actually the credit cost will
trend lower.
With regard to cost of funds, I will ask Rashmi to answer that.
Rashmi Mohanty:
On the cost of funds, we saw that the RBI actions on rate hike taken until Q3 resulted in the cost
of funds going up in quarter 4. There has been one more action by RBI, which is a 25 basis
points increase in February. On account of that, we do expect that the cost of funds for Q1 FY
’24 will be higher by about 10 basis points to 15 basis points. It seems, from the statement that
RBI has made so far, while the Governor did mention, it's a pause and not a pivot, I do not expect
any further rate hike from the RBI. If that is the case, I would expect that, the cost of funds would
stabilize for quarter 2 and maybe start to inch down in the second half of the year. On the NIM,
therefore, the corresponding impact will be that, while we have been able to maintain the NIMs
in quarter 4, very marginally dip from quarter 3, we do expect that the NIMs to stabilize over
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quarter 1 and quarter 2. And any benefits coming in from the cost of funds and also any actions
that we have been taking, which we took in quarter 4 and we will be taking further in quarter 1,
on the customer yield, will help us, strengthen the NIMs in the second half of the year.
Rohan Mandora:
Follow up on the first reply, the earlier vintage, which one, we were seeing a delinquency, are
these pre-pandemic originations, just to confirm? And also on the self-employed originations, if
you can just touch upon, that question is pending.
Rashmi Mohanty:
Yes, the portfolio that Mr. Rao did mention, is a pre-pandemic portfolio. It's a sub-segment that
we identified, which was originated pre-pandemic. And your question on self-employed, the
answer is, it's a mix of self-employed and salaried. But we've taken corresponding portfolio
actions based on whatever further sub-segmentation that, we can do on that.
Rohan Mandora:
Sure. Thanks.
Moderator:
Thank you. We have our next question from the line of Bhavik Dave from Nippon. Please go
ahead.
Bhavik Dave:
Hi, good evening, sir. I hope, I'm audible. Two questions. One is on your cost of acquisition, in
the sense that, when we see our incremental card that, we are adding, in the last four or five
quarters we've been adding card in the tier 3 tier 4 regions. I just wanted to understand, if the
cost of acquisition is similar, when we do metro acquisitions versus tier 3, tier 4 acquisitions.
That is point number one. Point number two is, when we see quarter to quarter, the operating
expenses haven't fallen that, we've seen last year. So, in 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 by 5%, 10%, quarter-on-quarter. Just want to understand, what exactly is
happening there. To that, just want to understand going ahead, can operating expenses come out
lower as a percentage of our income considering, we are doing this online channel that, we've
opened up incrementally. So just want to get a sense on that. Thank you.
Girish Budhiraja:
Cost of acquisition on a year-on-year basis, we have seen a downward trend. It's actually 10%
plus downward trend that, we have seen in the cost of acquisition. You mentioned metro versus
tier 3, tier 4, while we do not look at it from that perspective, but we can tell you that Banca cost
of acquisition is lower than open market cost of acquisition. And for the natural reasons that, in
the Banca scenario, there is a kind of leads, which is available from the customer. 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 MD sir mentioned that we have launched the
SPRINT journey, where you can get the card within five minutes to six minutes, in your hand.
As more number of customer pass through that and we are able to generate more volumes there,
the cost of acquisition will further trend downward, in that direction.
Rashmi Mohanty:
Your second part of the question was that the operating costs has been flattish quarter-on-quarter.
Is that what you're asking?
Bhavik Dave:
Yes. And last year, same time, third quarter to fourth quarter, there was a dip. Just want to
unwind up. If you see this quarter versus last quarter, the number of cards that, we added, the
gross additions were lower, right? Like a million card versus 9,00,000 cards, this quarter. Just
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want to understand like, why are, we seeing like the cost of other expenses going down quarter-
on-quarter?
Rashmi Mohanty:
So, the reason for the 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 kick started in quarter 4, and
the cost of that has come in. So, while as Girish explained that the cost of acquisition quarter-
on-quarter has been coming down, the overall operating cost is higher due to certain project
costs, taken up in quarter 4.
Bhavik Dave:
Sure. This cost of acquisition going down should benefit us in FY ‘24, right? The cost should
not, except our rewards and promotional expenses that we do, except that, the other part of the
cost structure should trend flattish or lower, right? Is that a fair assumption?
Girish Budhiraja:
On a quarter-on-quarter basis, there can be some variation because in our model of acquisition,
there is, if we acquire through digital, then the cost is very low. But otherwise, if you do through
manpower, there is a set of fixed costs and then there is a set of variable costs. There is usually,
some amount of variation and that happens, on a quarter-to-quarter or a month-to-month basis.
But on an annualized basis, we will be trending downwards.
Bhavik Dave:
Yes, sure. This is the last question. How much is the Sprint journey contributing to our 9,00,000
cards? And how is it trending? That's the last question. Thank you.
Girish Budhiraja:
So 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 cashback 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
YONO, along with the internet banking. So, these are the things, which is in progress. So once
that happens, more number of customers suddenly 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 five minutes.
Moderator:
Thank you. We have our next question from the line of Bhavesh Kanani from Ask Investment
Managers. Please go ahead. Mr. Bhavesh Kanani.
Since there is no response, we'll move on to the next question from the line of Alpesh Mehta
from IIFL AMC. Please go ahead.
Alpesh Mehta:
Sir, two questions. First is on the yield on loans. We are seeing the substantial improvement, in
the yield. So, what has been the increase in the percentage
Moderator:
I'm sorry, sir, we can't hear you again. Mr. Mehta.
Since there is no response, we'll move on to the next question from the line of Shubhranshu
Mishra from PhillipCapital. Please go ahead.
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Shubhranshu Mishra:
Good evening. Thanks for the opportunity. Two questions. One is, given the fact that the
revolvers are still range bound, 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 spends and corporate funds?
Rashmi Mohanty:
You have to repeat the first question, Shubhranshu. We got the second one. What was the first
one?
Shubhranshu Mishra:
So, given the fact that revolver as a proportion is lower or range bound, so the interest income
is 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 of funds?
Rama Amara:
we have stated in the past that we will be looking at the revenue optimization through the cross
sales. We have various products like EnCash, FlexiPay, we have Balance Transfer, and the
subvention products are there. Of course, we are also adopting a risk-based pricing, to be more
competitive offering in the market. We are also looking what are the other risk mitigations that
are available to expand our base that is eligible for availing these products. So, that way we have
steadily increased the share of this interest-bearing NEA, if you look at overall revolver plus
EMI, it has increased by 2% points for a years’ time. So, this endeavor will continue. But, of
course, we will also be looking at the fee income, whatever the other ways and means of
supplementing some of the revenue lines that got evaporated particularly after some changes
have come into effect from 1st of October. We did notify the market and the stakeholders. We
have introduced two types of fees. So, we will continue to look for kind of avenues to augment
our current state.
Rashmi Mohanty:
Second question is the margin contribution in retail spends and corporate side.
Girish Budhiraja
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 pass back 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 rewards points so, there is an element there. And we
also give up to 52 days of credit free period. So, these are the two 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 the customer pays 100%, so there is no interest income.
Shubhranshu Mishra:
Thank you for that. If I can slip in one last question, what kind of spend growth are we looking
at in 2024 and 2025? Thanks.
Girish Budhiraja:
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 numbers.
Moderator:
Thank you. We have a next question from the line of Alpesh Mehta from IIFL AMC. Please go
ahead.
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Alpesh Mehta:
Okay. Just two 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?
Rama Amara:
I said in the past, we adopted a kind of risk-based pricing, which permits like a kind of
transmission of the rate whenever the funding cost increases or whenever the other costs
increase, we also can transmit back to the customer, so, that is a strategy that was adopted. Last
quarter when we revised the prices for some of these loan products, I talked about EnCash, talked
about FlexiPay and other loans. So, we were able to successfully transmit the rates for the new
disburses. Because unlike the kind of others in the industry, where the entire portfolio gets reset
because they are linked to the external benchmark, in our case mostly the loans carry fixed rates.
So, the opportunity to transmit the rates is only with respect to new disbursals, which we were
able to do successfully last quarter.
Alpesh Mehta:
Okay. And there is no change on to the revolver yields? Or Revolves yields remains the same?
Rama Amara:
There is no change in the ATR. Revolver remains the same and the share in the overall asset
also remains the same. So, obviously, there is no change in the revolver contribution.
Alpesh Mehta:
Perfect. And just the last one, if you can throw some light on to 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?
Rashmi Mohanty:
The instance-based fee was higher largely because, if you recall, we introduced the fee on the
rental and we also increased that fee from INR99 to INR199 in the month of March. While of
course, the impact of that increase is minimal in Q4 given that the number of days that it was
effective for was less, but a significant portion of that increase has come from the rental fee. And
there are some other elements as well, but this was a major contributor.
Alpesh Mehta:
Perfect. And lastly, the 20%, 25% increase into the spend growth that you are factoring in, does
that include any action on the rental payment side as well?
Rashmi Mohanty:
Sorry, the 20%, 25%...
Alpesh Mehta:
Growth on to the spend side that the industry is expecting, since now on the rental there are no
rewards, and some fees are also introduced on that. So, do you expect that to be stable or that
could be, that could see some drop in the spend growth?
Girish Budhiraja:
No, should not, because in between Q3 to Q4, as Rashmi was mentioning, in the mid of Q3, we
levied INR99 as a fee and in March we increased it to INR199. We have not seen any drop on a
month-on-month basis from Q3 to Q4 on the rental spends. So, while absolute growth might not
be similar to industry level growth, but it will still remain stable or marginally equable.
Moderator:
We have a next question from the line of Anand Dama from Emkay Global. Please go ahead.
Anand Dama:
Yes, sir, thank you for the opportunity. So, firstly on the NPAs front, which we have gone up
quarter-on-quarter and our credit cost also have gone up, where you said that the ECL provisions
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has revised. But just want to check like whether these NPAs have come, or the stresses come
primarily from the monitorable or the identified stress pools or this was all of a surprise that
basically came through in this fourth 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 or that
you monitored?
Rama Amara:
I think you will have to repeat the question. Most part of it was not audible.
Anand Dama:
So basically, sir, one is that the NPA flow that you saw during the current quarter was basically
out of the identified stress pool or basically, this was all of a surprise that we saw in the fourth
quarter?
Rashmi Mohanty:
The question is that the NPA increase that we have seen, is it largely from the identified stress
pool that we called out or this is a surprise?
Rama Amara:
I talked about the small segment having a higher delinquency. It means you do expect a kind of
contribution from the legacy portfolio, some new vintage and everything, but this segment, what
we identified has a higher propensity to become delinquent. we have seen the recovery efficiency
or collection efficiency in this segment, we noticed that there is actually stress there. 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 taken a few and
some more are on the anvil, but again, as a matter of repetition, the latest vintage is behaving
exactly as per our expectations. So, we expect that these actions will eventually result in a kind
of lower credit cost over a period of a couple of quarters.
Anand Dama:
Okay. But going forward, like running into the first quarter, do we have any kind of stress pool
that we have identified already and if yes, if we can quantify that?
Rashmi Mohanty:
Quantify for the next quarter?
Rama Amara:
As I said, it is 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 a quarter will be a kind of
stabilization period before it actually starts evidencing a kind of real drop in the rate. But of
course, this one-time kind of thing what happened is not expected to repeat in the next couple of
quarters because it is purely a model related adjustment. So, we are confident that the overall
credit cost will maybe, it will not cross the upper band whatever we have given. That confidence
is there, but actions will take time. But over a couple of quarters, it will definitely come down.
Moderator:
We have a next question from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
M.B. Mahesh:
Hi. Two data keeping questions and one qualitative question. The first is to Rashmi ma'am. Can
you just explain, 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 non-
interest income line or is it adjusted against the provision?
Rashmi Mohanty:
So, the business development incentives are basically the milestone, the kind of milestone
incentives that, we get from our partners. These are part of, these are basically contracted, slab
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rates 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.
M.B. Mahesh:
Yes, in a sense, what explains this jump, for the quarter?
Rashmi Mohanty:
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. While most of it, was seen around
December or so, but the impact of that has come in in quarter 4 only, largely.
M.B. Mahesh:
Okay. And recovery from written-off?
Rashmi Mohanty:
Recoveries from written-off, go into our other income as bad debts recovered.
M.B. Mahesh:
And this gets clubbed under instance basically, right?
Rashmi Mohanty:
It gets, sorry, it’s part of the…
M.B. Mahesh:
Where would you club this income, in the non-interest income line? Which line item?
Rashmi Mohanty:
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 would be other…
M.B. Mahesh:
INR154 crores.
Rashmi Mohanty:
As bad debt recovery.
M.B. Mahesh:
Okay. And the qualitative questions are to brief 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
category set of customers kind of, where are they in the journey of recovery post-COVID right
now?
Rama Amara:
So, Mahesh, 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 Rashmi
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 months to 18 months are showing very
good spending behavior, very good activation rates. We have, 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, we have, it is already caught up. There is only one
category of spend, which is international spend, where I believe that, there is still more
opportunity. The balance 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, we
are indexed at almost 140% of what we were in COVID on the travel, specifically on the
domestic travel.
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M.B. Mahesh:
In a sense, the choice of spends that, they seem to be taking still seems to be overwhelmingly on
the EMI side rather than to work. That journey has still not happened from that segment.
Rama Amara:
I would state that, if I look at spend conversion to EMI that, spend conversion to EMI, if I take
out the rental spend, because rental typically is more of a transactor spending 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 am looking at conversion to EMI, it is either
at the point of sale or after you have spent and before payment due date, you have converted to
EMI.
Moderator:
We have a next question from the line of Gao Zhixuan from Schonfeld. Please go ahead.
Gao Zhixuan:
Thanks for the opportunity. So, just follow up on the Cost of fund comments, so, basically, you
are saying that, because of repo hike last quarter and then the first quarter, we will see 10 basis
points to 15 basis points increase in Cost of funds. And then after that, because RBI had a pause,
we should not see any increase in cost of funds, right? 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 rate bottomed
about 4% at June 2020. But if I look at our cause of fund, it only bottoms about three quarters,
four quarters later. So, there's a timing lag in terms of calculation of the time, when repo paused
or bottomed to our cause of fund stabilize, right? So, just wondering, why this time, the cause of
fund should immediately stop increasing, the moment RBI stopped hiking. I thought 25%, 30%
of our funding is from NCD, which should be priced with a bit of lag, right?
Rashmi Mohanty:
Your comment is that the cost of fund, why is it increasing, when the RBI has still paused?
Management:
Why it should not increase?
Gao Zhixuan:
Because you guys are saying that second quarter FY ‘24, cost of fund should not increase, right?
Because RBI has paused. But historically, our cost of fund re-pricing, if I just look at most recent
episode, where RBI was cutting rates, your cost of fund is still declining three quarters, four
quarters after RBI stopped cutting rates. So, on the way up, shouldn't there be a re-pricing lag as
well? So, our cost of fund should continue to increase a bit even after RBI paused because some
of our funding could be priced with a lag?
Rashmi Mohanty:
I'm pulling out the data for the 2008-2009 that you're telling me about it.. But just a few pointers
in terms of how do we see, how does our portfolio get impacted. Number one, as we stated in
the past as well, that the transmission of any market rate change happens in our portfolio with a
lag. So, what we saw an increase in the cost of funds in quarter three and now in quarter four
and what I'm talking about in quarter one is with a lag. The RBI started increasing rates in April
of last year. So, April 2022 is, when we saw the first increase in the repo rate. We didn't see an
increase in our cost of funds till quarter three. So, it was almost after about seven months to eight
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 six 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
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breakup, almost about 39% odd is transactor. There is a revolver percentage, which again is
short-term in nature. We 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 liability, we've also been
borrowing short and which is, why every six months, every nine months, when the portfolio
comes for a re-pricing is, when we're actually able to feel the impact of the market rate. So, those
are the two characteristics 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 comes, whatever portfolio,
whatever amount of our portfolio comes for re-pricing in the first quarter, we've done some
modeling around that and we expect that that increase is going to be about 10 to 15 basis points.
I called out earlier and if there are no further rate hikes, we should see the cost of funds stabilize
over the next two odd quarters. And if the market rates start to trend down from now onwards
till the third quarter of this financial year, we will then see the impact of cost of funds where it
starts to come down towards the end of this financial year. So, you're absolutely right, it is with
a lag because our portfolio gets re-priced almost at about a six month to an eight-month kind of
a frequency. This is how we felt the impact of the market rate.
Moderator:
Thank you. Ladies and gentlemen, request you to restrict your question to only one at a time.
You can join back the queue for follow-up questions. We have our next question from the line
of Pankaj Agarwal from Ambit Capital. Please go ahead.
Pankaj Agarwal:
Hi, good evening. Ma'am, if I look at your cost of funds, it used to be 8% before COVID and
the policy rate was almost similar to the current year. It used to be in the range of 8 % to 8.5 %,
right? So, what has fundamentally changed in your funding profile over the last three, four years
so that your funding cost will remain below pre-COVID?
Rashmi Mohanty:
I don't think we have mentioned that the rates are going to go up.
Rama Amara:
His question is around with the policy rates remaining more or less at the same level, how are
we confident about the trajectory being only limited to increase being limited only 10% at this
point? I think if you're comparing the situation three years back or four years back, I think the
share of long-term in our overall funding has increased over a period of last four years from a
9%, 10% to 15% to now 35% in the overall. So, that provides a kind of insurance against rate
increases. So, we have been steadily increasing but of course, when the rates start to peak,
obviously we are looking at what is the right timing and what is the right instrument. So, our
endeavor is to continue to increase it in a meaningful way, in a very calibrated way. So, as we
select. 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 rate whenever the market rates give. So,
that's the fundamental difference between a four-year back scenario and a current scenario.
Pankaj Agarwal:
So, basically duration of your liabilities has come down over the last three quarters?
Rama Amara:
Duration of liabilities increased because the long-term share, long-term liabilities might be of
NCDs of three years or otherwise subordinate bonds kind of thing, maybe of 10 years, what we
rise. That way it has increased actually over a period of time.
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Pankaj Agarwal:
But then, I mean, if that is the case, don't you think then your funding cost can go back to 8% at
some point of time despite the current policy?
Rashmi Mohanty:
And what 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 have been
increasing our long-term funds post-COVID and post-COVID the rates were low and we are
benefiting from that.
Pankaj Agarwal:
Okay. So, basically you logged in lot of funds at a very low rate, and they are longer duration.
Rashmi Mohanty:
Yes.
Rama Amara:
Yes.
Pankaj Agarwal:
The reason I am asking this question is that generally, you know, there is a tenure premium,
right? So, keeping everything as constant, if your tenure of liabilities are higher, the cost of funds
should be higher. And as I said, at a similar repo rate, you will need to have 8% cost of funds
three years back or four years back, right? So, ideally if your tenure premium, your tenure has
gone up, then at some point of time at the similar policy rate, you know, your cost of funds can
go back to 8%.
Rashmi Mohanty:
I think we will have to go back and look at the numbers there. I mean, I do have the numbers for
2018-19, they are at about 7% or so. You also will have to look at the other things besides the
repo rate, the credit premium, etc. as well. As to how much was the credit premium at that point
in time for that AAA rated entity compared to where it is right now. So, we will have to look at
all of those factors.
But as I said earlier that our modelling shows another 10 to 15 basis points, stabilization and
beyond that, we will have to see as to how the market reacts. Now, if the credit premium 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.
Pankaj Agarwal:
Okay, fair enough. Thank you.
Moderator:
Thank you. We have our next question from the line of Anand from HDFC Mutual Fund. Please
go ahead.
Anand:
Ma'am, I just wanted to understand on the spend based fee income, how should we look at that
going forward? As most of the spend category, where the SBI are generally higher are opening
up and we are seeing the action on that. Should we expect the spend based fee income to grow
higher than the overall spend next year?
Girish Budhiraja:
Spend based fee income is primarily the interchange that we earn from on the spending. It is
dependent on the three 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
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it gives you a higher interchange, but you have to do a pass back. So net margin as we have
stated is very less. Over the last period of, during the COVID we saw this interchange rate going
down because people’s consumption in the discretionary items was going down and non-
discretionary was stable where the interchange rates are typically lower. Now as you have seen,
there has been a marginal stability and some marginal increase off late, as the travel has gone
up, restaurants 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.
Anand:
Sir, on the instance-based fee income, this quarter we have seen a sharp improvement. Do you
think as we keep on charging more and more FC avenue like fee on the rental, do we see this
instance-based fee income to improve further or?
Girish Budhiraja:
We levied rental fee of INR99 from November of last year and then we increased it from March
17, to INR199. So, half of the last quarter was positively impacted by that, but you have to also
recognize that the OVL fee was completely not there, which is also an instance-based fee in Q3.
In Q4, we have seen a full benefit of INR99 and almost 17 days benefit of INR199. These are in
line with what the industry is charging. Typically, the industry rate that is charged is 100 bps on
the transaction and we have seen that the average ticket size is around INR20,000 to INR21,000.
So INR199 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 conjecture but those spends are stable at this point.
Anand:
So, if I look at in terms of spend, instance-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?
Girish Budhiraja:
It would not be on rentals; it will not be 1.2% because we get interchange on that also. It is not
a zero-interchange category. There is an interchange also available and after that we are now
charging INR199. So, the number is higher. We believe that should remain stable at least in this
quarter.
Anand:
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 for us?
Rama Amara:
I think you are talking about EBCC or operating profit the entire year, it is currently based at
17% but for the quarter alone, if you look at, as compared to year-on-year basis, it is at 22%. So
that way, this quarter, last quarter itself Q3 itself, reflected a kind of, it observed the negative
impact and put the pause, some of the regulatory provisions, which has impacted certain core
and fee lines like OVL, etc.. Then Q4, whatever steps we have taken more or less it is reflective
of what is the contribution from this new levy. and with a kind of direction what we are aiming,
where we want to optimize the cost, continue to focus on digital, increase the share of digital
channels for sourcing, this will improve steadily. Overall if you look at, slightly away from this
operating profit, overall return matrix if you look at, the way to look at is, a quarter to quarter,
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there will be fluctuation, even in operating profit, even in the ROE. But long-term averages,
whatever we have like a 5% plus, 25% near about 25% ROE that, will be maintained. That is
the minimum expectation.
Moderator:
Thank you. We have our next question from the line of Nitin Aggarwal from Motilal Oswal.
Please go ahead.
Nitin Aggarwal:
Hi, good evening. I have two questions., if you look at a new card sourcing, then over the past
two years-three 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 a downward trend. So, is there any threshold
that you would like to adhere to while broadening the risk filters to boost revolve rate?
Nandini Malhotra:
So basically, for the self-employed customers, a lot of the self-employed actually comes from
our Banca channel, where we look at their saving account, current account behavior and we
onboard them. So, it's a relatively better profile. We have a better visibility to the cash flow. So,
in that way, I would say, it's a relatively a lesser risk, 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 and in place and so we have a better idea about the customer's repayment potential, when
you onboard self-employed customers.
Nitin Aggarwal:
All right, ma’am, so today the number is like 61%, 39%. So, this number, like we are not looking
to have any limit on this 39% self-employed, what we have reported this quarter.
Rama Amara:
The way we are operating is like obviously, we look at what is the potential, what is the
customer's choice obviously and what is the kind of channel, we are using, etc., we take it into
account. Of course, delinquency does matter and the risk-adjustment 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, the
other question around the, however self-employed, because in as much as, we are acquiring more
of these customers through the Banca channel, where we have an auto-debit and auto-swipe,
kind of facility. The revolve propensity will be lower, for a self-employed acquired through
Banca channel.
Moderator:
Thank you. We will take a last question from the line of Piran Engineer from CLSA. Please go
ahead.
Piran Engineer:
Yes. Hi. Thanks for taking my questions. Just one data question on like, if you can share how
many rental transactions happened on your platform, over the last three months. And just to
clarify on this instance-based fees of roughly INR830 crores, is there any one of element of
seasonality or any reason, why it should dip next quarter, if spends don't dip?
Girish Budhiraja:
I have already told you the average ticket size is between INR20,000 to INR22,000 and the
weightage on spends is almost around mid-teen. So, you can make an estimate on number of
transactions there.
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Piran Engineer:
Okay. Fair enough. And on the next, something on instance-based fees?
Rashmi Mohanty:
On the instance-based fees as I called out earlier that, there is a provision of rental fees that come
in, in this quarter, which should stay or should stabilize or should stay at these levels only for
the next few quarters as well. There is some milestone incentive that, we have gotten. That will
normalize over the next few quarters. So while, if I were to just look at from a BAU business
perspective, this number should continue to grow. Will it see the kind of jump if between quarter
3 and quarter 4? The answer is no. You will see a more normalized increase going forward,
quarter-on-quarter.
Piran Engineer:
Got it. That explains. Thank you so much and all the best.
Moderator:
Thank you. I would now like to hand the conference over to Mr. Rao for closing comments.
Over to you, sir.
Rama Amara:
First, 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 Card for their continued
commitment to ensure the company’s success. I would like to highlight that SBI Card’s strong
focus on sustainability has helped it emerge stronger past any market turbulence. 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.
Moderator:
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. Thank you.
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