On Friday, India’s SBI Cards and Payment Services announced a first-quarter profit that fell short of estimates, owing to an increase in credit card write-offs.
Lenders in the nation are struggling with an increase in problematic loans, especially in areas like personal loans, credit cards, and microfinance. Overleveraging and a rise in the number of loans owed per borrower are the reasons given by analysts for this.
For the three months ending in June, SBI Card, which is primarily owned by State Bank of India, the biggest lender in the nation, recorded a 6.5% decline in profit after taxes to $54.3 million, or 5.56 billion rupees. According to data provided by LSEG, the profit was also less than the average expectation of analysts, which was 5.86 billion rupees.
In discussing this matter, the business stated that gross write-offs increased by 32% to 12.80 billion rupees from the previous year.
Meanwhile, cardholders’ total expenditure increased by 21% to 932.44 billion rupees, while the total number of credit cards issued, or cards-in-force, increased by 10% compared to the previous year.
Despite this, the company’s operating revenue improved, increasing by 12% year over year to 48.77 billion rupees, and the gross non-performing assets ratio has improved, declining marginally from 3.08 percent in the prior quarter to 3.07 percent, but was marginally higher than 3.06% a year earlier.
Bernstein And HSBC Have Lowered Their Price Expectations
International brokerages that have lowered their price forecasts for SBI Cards include HSBC and Bernstein.
Citing high borrowing costs as a consistent metric for the company, Bernstein has rated the stock as “underperform” with a target of ₹690.
With a target of ₹1,040, Macquarie is still “neutral” on the stock, pointing out that declining funding costs may help buffer profits this fiscal year.
Impact On SBI Cards’ Share Prices
The results impacted SBI Cards and Payment Services’ shares, which fell by more than 6% on July 28, as it shows a downside possibility of almost 5 percent from the previous closing price.
The brokerage firm explained this by stating that “an unexpected rise in credit cost to a new peak of 9.6% (annualized) was the reason why SBI Card’s PAT was 6% below expectations, even though PPOP stood 3% better than estimates.”
In contrast, Emkay Global Financial Services lowered its target price by 5% to ₹1,025 per share while maintaining its “Add” recommendation on the stock.
“We believe SBIC will be a key beneficiary of the policy rate cut as well as asset quality normalization cycle in the card portfolio,” the brokerage said while explaining the reason behind it.
The lower-than-expected performance of SBI Cards is a result of increasing pressure from an increase in credit card defaults and borrower overleveraging. The sharp 32% increase in write-offs resulted in a 6.5% decline in profit despite strong growth in card usage and revenue, highlighting the difficulties lenders confront in maintaining asset quality in the face of growing consumer debt.
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