SBI Card reported a gross bad loan ratio of 4.51%

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SBI Card

SBI Card and Payments Services Ltd showed a remarkable recovery in asset quality for the December quarter. The company saw defaults reduce from the previous quarter even without forbearance and it did not end up restructuring a large pile of loans.

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SBI Card reported a gross bad loan ratio of 4.51% excluding the impact of judicial standstill on recognition by the Supreme Court. This was a sharp drop from 7.46% reported in the previous quarter.

SBI Card kept its restructured pile to just Rs2,344 crore,

Stress has increased from a year ago period but that is to be expected given the pandemic. What is more is that SBI Card kept its restructured pile to just Rs2,344 crore, which is 9% of its receivables. The lender made more provisions to guard against stress in the December quarter. It is clear that the lender chose to focus on collections, just like peers such as Bajaj Finance and even banks. Collections for SBI Card have reached pre-pandemic levels.

That investors liked this is reflected in the more than 4% gain of the share price in early trade on Friday. The company seems to have been forgiven for its net profit drop of 30% for the quarter as potential stress looks less. That improves the outlook for profitability.

However, nearly half of SBI Card’s income comes from the interest it charges when its borrowers default or exceed the free credit period on their card payments. Thus, the reduction in stress cuts both ways for the company. Nevertheless, keeping asset quality at a level that fetches a good level of income but does not require a hit on profits is a tight rope to walk. So far, SBI Card seems to have kept its balance.

Even as Indians may be paying back their equated monthly instalments regularly, they are swiping cards less frequently than before. Card spends grew by a tepid 8% for the December quarter. They are back to pre-pandemic levels but for the lender to improve its profitability, coming back to its high growth path is necessary. This quarter was expected to give a big boost because of the festival season.

For the lender, that does not seem to have happened in a big way. Large discretionary spends are still restricted to consumer durable purchases with travel and entertainment showing a sharp drop. This is bound to weigh on growth for the lender. For now, the lender’s performance on asset quality is likely to keep investor sentiment favourable.

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