SBI Cards and Payment Services Ltd’s credit card spend grew by 1.2% month-on-month (mom) in August, according to the latest data from the Reserve Bank of India (RBI). This comes at a time when the industry’s credit card spend has declined by 3%.
Nevertheless, credit card spending is expected to improve for the industry in September and October on the back of the festive season. SBI Cards will also benefit from this, as more spend means more receivables. The market share of SBI Cards’ credit card spend, which had dipped in June and July, rose sequentially in August.
A 30th report by Axis Securities said, “We believe that the recently launched cashback card will help SBI Cards see strong traction on spends and help it further improve its market share. SBI Cards in particular has a special partnership with Amazon. september.
It’s also a good idea for investors to follow the ticket size of the spending to evaluate whether profitable segments like revolver mix are rebounding. Credit card companies earn more interest from revolvers which are customers who carry balances from one month to the next and pay interest on revolving balances. Krishnan ASV, Senior Vice President, Institutional Research, BFSI, HDFC Securities said, “Without revamping revolver rates, SBI Cards earns only the Basic Merchant Discount Rate (MDR) on its transaction balances.” Transactions are cardholders who pay their dues in full. every month and thus, avoid paying any interest on it.
In the June quarter (Q1FY23), transactions accounted for 38% of SBI Cards’ total receipts, while that of revolvers was 26%, down from 25% in Q4FY22. Revolver Mix needs to be closely tracked when the Q2 numbers are announced.
SBI Cards shares have gained 7% in FY23 so far. According to data from Bloomberg, the stock is now trading at 27 times FY24 estimated earnings.
Analysts said RBI’s stock is under pressure on MDR and intense competition. “In the near term, one has to look at RBI’s stand on MDR rates. MDR forms a significant portion of the fee income of SBI Cards. If there is a cap on MDR, we feel that SBI Card will have to compensate with reduction in interest free period, higher membership fee etc. to maintain the return on asset,” said Abhinesh Vijayraj, Director, Equity Research, Spark Capital Advisors (India).
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