SBI Cards and Payment Services slips 9%, hits new low since listing

Shares of SBI Cards and Payment Services slipped 9 per cent to Rs 495 on the BSE on Friday after the Reserve Bank of India (RBI) today announced an extension of the moratorium on loan EMIs by three months. The RBI commentary indicates that the stress in the economy on both demand and supply is likely to continue.

The non-banking finance company's stock was trading at its lowest level since listing on March 16, 2020. It has fallen below its previous low of Rs 501 touched on April 16, 2020. The stock has now fallen 34 per cent against its issue price of Rs 755 per share.

In a new set of measures to trim the impact of coronavirus on the economy, the RBI today decided to cut the policy rate by 40 basis points from 4.4 per cent to 4 per cent. The reverse repo rate has been reduced to 3.35 per cent. It has also extended the moratorium on loan repayments by three more months.

For the working capital facilities, the interest payment has been deferred by another three months, in-line with extension of moratorium on term loans. The accumulated interest for the deferment period can be covered into a funded interest term loan payable be end of the current fiscal. Thus, borrowers need not pay accumulated interest in one shot immediately after the deferment period, which is a big relief for them.

“There is a risk of moral hazard issue creeping in, as borrowers who have the ability to pay, may even opt for moratorium. For MFIs and NBFCs catering to bottom of the pyramid customers, the risk of repayment behavior getting disturbed is higher,” Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities said.

SBI Cards is the second largest credit card issuer in India. It offers various types of credit cards considering the need of retail clients (viz. Lifestyle Cards, Rewards, Shopping, Travel and Fuel). It also offers corporate cards and is the largest co-brand credit card issuer in India. It also issues card in partnership with smaller or regional banks.

SBI Cards reported a 71 per cent year-on-year (YoY) decline in pre-tax profit at Rs 112 crore in March 2020 quarter (Q4), due to additional bad loan provisioning of Rs 489 crore factoring in Covid-related disruption. The management of the company said the current quarter will get impacted because they are not able source new cards, and the collections are also down.

“While lockdown and loss of business have direct bearing on spends (16.7 per cent YoY growth in FY21E vs 27 per cent in FY20) and fees (23 per cent de-growth as against 32 per cent YoY growth in FY20) coupled with NPA spike (4-6 per cent over FY21-22E), we had to prune down FY21 earnings by 48 per cent,” analysts at Prabhudas Lilladher said in a results update.

FY22 should witness return to normalcy attributed to Co.’s SBI association, existing sophisticated technology infrastructure and data analytics. Valuation multiple stands trimmed as it reflects the vulnerability of unsecured nature of business to pandemic shocks, it added.

At 01:51 pm,  SBI Cards was trading 5.5 per cent lower at Rs 513 on the BSE, as compared to a 0.89 per cent decline in the S&P BSE Sensex. A combined 3.9 million equity shares changed hands on the counter on the NSE and BSE so far.