Dealing with defaulters remains a challenge for SBI Card

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₹2,000 crore, in line with almost the same growth rate in spending by cards, which was mainly driven by increase in cardholder base to 18.9 million. Notably, blended spending per card, which includes corporate and retail, saw a slight decrease. Although the company earns fee income through interchange fees or merchant discount rate fees, it also pays out a portion of fees earned on corporate card spending as rebates.

So, while fees earned grew, less corporate spending meant the fees paid fell 36%. This twin benefit on the fees front was the critical factor that saved the day for SBI Card. True, the company is prone to seasonality such as peaking of festival spends in Q3, but still there are some clues from quarter-on-quarter trends that help in understanding the movement in key variables from a near-term perspective.

For instance, while there is some respite in the form of decline in cost of funds by 20 bps sequentially, the impairment or provision is likely to remain elevated going forward, too, with stage 3 outstanding dues, or non-performing assets (NPAs), having risen 12% sequentially to ₹1,424 crore. SBI Card plans to convert outstanding dues to EMI of 12 months or more for certain customers. However, while NPA accretion remains high, the declining recovery rate from defaulters is a bigger disappointment.

For instance, the company’s recoveries stood at ₹491 crore in FY24, lower 16% year-on-year. This indicates that credit card defaulters may not have faced temporary cash flow problems, but it could be either a permanent loss of income or unwillingness to pay up. In such a scenario, there are serious doubts whether allowing the EMI option can alleviate the problem.