SBI Cards & Payment Services Limited

Personal view:

1. Raising interest rates are directly hitting the P&L with no way to passon the costs to their card holders.

2. Despite reduction in employee expenses, there is a massive spike in operating costs.

• This could be due to the launch of Cashback card and subsequent Spike in new card issuances to 13lak cards vs 9lak cards last quarter.
• There may be more long term impact as well since Cashback card comes with relatively higher rewards costs.

3. Credit costs spiking up again to 5.6% (annualized) , a bad sign.

4. This business ROA are quite volatile, yet most profitable compared to any other credit business out there.
   Credit costs itself are higher than the ROA in multiple quarters. – This structure will lead to massive earnings volatility in bad times and could result in massive swings in stock price.

5. HDFC bank management has said in a concall that the chronic revolvers are trending down and they don’t see it inching back.
   This might be the case with SBI cards as well and reflected in the Interest income dip witness in this quarter.

• I believe this is because of fintechs like Cred, protecting the masses by educating them about the predatory charges on rollover debt. – so, this could be a longer term trend.