Brokerages bullish on SBI Card on hopes of credit cost moderation

Brokerages have turned bullish on SBI Cards & Payment Services (SBI Card) as they expect moderation in credit cost for the credit card issuer.

 

In addition, an increase in the net card addition during November is also seen as a positive.

 

“While credit card delinquencies are rising for other players, we expect SBI Card’s credit cost trajectory to improve because its weak credit cycle set in earlier than peers. And now, it has guardrails for better risk assessment,” analysts at Nuvama said in their brokerage report.

 

Credit cost of the company rose to as high as 9 per cent in Q2FY25 from 5.6 per cent in Q3FY23.

 

The main reason behind increased credit cost is the inability of customers to repay due to challenges in cash flow and increase in leverage. This also led to an increase in delinquency, SBI Card’s management had said during its post earnings analyst call.

 

However, analysts believe that the credit cost has peaked for SBI Card because its weak credit cycle started before peers. It is likely to see an improving trend.

 

Analysts at Nuvama expect the credit cost to remain flat in Q3FY25 and then start improving from Q4FY25.

 

Similarly, analysts at Nomura expect the credit cost to rise to 9.1 per cent in FY25 before dropping to 7.5 per cent in FY26 and 7 per cent in FY27.

 

Further, SBI Card has also seen an increase in the share of business from metro regions. It has been gradually rising since FY23 as “share of top 8 metro cities in new sourcing has been rising.” 

 

The company has also seen a declining leverage limit of non-metro customers.

 

Moreover, in November 2024, the card issuer had posted a rise in net card additions by nearly 231,000. This was the highest since around 255,000 net card additions in December 2023.

 

“All these indicate that asset quality issues should stabilise in the next few quarters, which will be positive for its return profile in FY26,” a brokerage report from Nomura said.

 

Any potential policy rate cut of around 50 basis points (bps) in FY26 may see a 30 bps positive impact on net interest margins (NIMs) and 25 bps impact on rate of assets (RoAs).

 

“Lastly, a cut in reward points in recent times should lead to cost savings. Further, increasing recovery from written off accounts and cut in reward points in recent times should lead to profitability improvement,” Nomura analysts noted.

 

The shares of SBI Card closed at Rs 731.25 after surging 5.12 per cent to an intraday high of Rs 760.15 on the BSE.