Rating Rationale

[1] The ratings pertain to tier-I bonds (under Basel III)

Key Rating Drivers & Detailed Description

Strengths:

Expectation of strong support from SBI: A credit card is an integral product offering of a bank. SBI Cards houses the credit card business of SBI, and hence, it is strategically important to the latter. The company receives strong financial, managerial and branding support from the parent on ongoing basis. It benefits from the strong customer franchisee of SBI, commanding a premium in the co-branded card segment. SBI has infused growth capital in SBI Cards, in the past. As on March 31, 2024, the bank held 68.6% stake in the company and will continue to hold majority stake over the medium term. SBI deputes its senior management in SBI Cards, guides strategic decisions and monitors operations. However, the company has substantial autonomy in decision-making. The parent will provide strong support to SBI Cards both on ongoing basis and in the event of distress.

Steady market position: The growth in CIF for the company has been faster than that of the industry in the past few fiscals; its market share in terms of CIF remained steady at 18.7% as on December 31, 2024 as compared to 18.6% as on March 31, 2024, though having grown from 15.3% as on March 31, 2017. SBI Cards is the second-largest credit card player by CIF and remains among top three players by spends. Gross card receivables stood at Rs 54,774 crore as on December 31, 2024, compared with Rs 50,846 crore as on March 31, 2024. Market share will improve over the medium term because of the company’s ability to tap into SBI’s large clientele and distribution network.

Profitability, despite momentary moderation, remains comfortable: RoA (calculated) averaged 5% over the five fiscals through 2024, supported by healthy net interest income and strong fee income. However, for fiscal 2024, RoA moderated to 4.6% from 5.6% in fiscal 2023 owing to revision in regulation pertaining to event/instance-based fee income, increased credit cost and increase in cost of funds. Fee income as a percentage of total assets reduced to 18.4% in fiscal 2024 from 20.3% in fiscal 2023 and 20.9% in fiscal 2022. Also, credit cost inched up to 6.3% in fiscal 2024 after improving in the last fiscals. Nonetheless, profitability remains above-average supported by net interest margin of 10.3%.

PAT during the first nine months of fiscal 2025 was Rs 1382 crore with an annualised RoA of 3.0% as compared to a PAT of Rs 1745 crore and an annualised RoMA of 4.6%, for the corresponding period of the previous fiscal. The moderation is attributed to a higher credit cost of 6.2% incurred during 9M 2025 (8.0% for 9M 2024) and a ~300bps basis points compression in NIMs between the respective periods. Over the medium term, while the company’s strong market position in the credit card segment will support its operating margin, ability to revive asset quality metrics and thus control credit costs, will remain critical.

Weakness:

Susceptibility to risks inherent in the credit card business: The entire loan book is unsecured; thereby making the portfolio is inherently risky. After peaking at 4.99% as on March 31, 2021 in the aftermath of Covid-19, GNPAs had remained under control within 2.5% since after fiscal 2022. However, as delinquencies started to increase in the low ticket unsecured loans and credit card segment since Q2 2024 – the company has witnessed a gradual uptick in its reported asset quality metrics. GNPAs, at 2.76% on March 31, 2024, increased to 3.27% on September 30, 2024. Thereafter, increased collections and recovery efforts, and frequent write offs, have led to a marginal improvement in GNPA to 3.24% as on December 31, 2024.

The management has taken several measures, including tighter credit policies, higher sourcing from bank channels, increased income cut-offs for new accounts and lower credit limits to risky customers. It has also made adequate provisions. Nevertheless, ability to maintain asset quality and profitability will remain a key monitorable.