Cut in earnings expectations, valuations to cap upside in SBI Card

Festive expenses and weaker margins weighed on earnings, even as GNPA ratios eased and spending momentum stayed strong

SBI Cards and Payment Services’ (SBI Card) Q2FY26 earnings were lower than consensus, due to high provisioning and high operating expenses.

 

Credit costs moderated sequentially though they remained high (net credit costs at 7.7 per cent versus 8.5 per cent in Q1FY26; 8.1 per cent in FY25).

 

New card acquisitions and cards-in-force (CIF) growth were subdued (up 3.5 per cent and 9.8 per cent year-on-year or Y-o-Y, respectively).

 

This was a mixed result with improvement in some metrics offset by deterioration in others.

 

SBI Cards had strong growth in Q2FY26 retail spends (9 per cent quarter-on-quarter or Q-o-Q) and receivables (6 per cent Q-o-Q) but net interest margin (NIM), fees, operating expenses (opex) and credit cost missed consensus estimates.

 

The NIM stayed flat Q-o-Q despite a 51 basis points (bps) Y-o-Y decline in cost of finance. Credit cost contracted 4 per cent Q-o-Q to 9 per cent, but consensus expectation was much lower.

 

Return on assets (RoA) — at 2.6 per cent — declined 75 bps Q-o-Q and 4 bps Y-o-Y. 

 

SBI Cards reported Q2FY26 net profit of ₹450 crore, up 10 per cent Y-o-Y and down 20 per cent Q-o-Q, due to higher opex owing to festival offers and corporate pass-backs. The transactor mix (those who pay their bill in full) increased to 44 per cent from 40 per cent in Q1, while revolver mix declined to 22 per cent and equated monthly instalment (EMI) mix fell to 34 per cent from 36 per cent in Q1.

 

Yields were affected by higher transactor volume and stood at 16.5 per cent.

 

Spends grew by 31 per cent Y-o-Y and 15 per cent Q-o-Q, led by revival in corporate spends which were up 218 per cent Y-o-Y and up 61 per cent Q-o-Q.

 

Retail spends rose 17 per cent Y-o-Y and 9 per cent Q-o-Q. The online segment contributed 61 per cent of retail spends. Receivables spending growth should sustain at 10-12 per cent.

 

The management expects momentum in corporate spends to sustain.

 

The gross net performing assets (GNPA) ratio improved by 22 bps Q-o-Q to 2.85 per cent, while net NPA ratio improved by 13 bps Q-o-Q to 1.29 per cent.

 

The expected credit loss (ECL) declined by 17 bps Q-o-Q to 3.3 per cent, while provision coverage ratio (PCR) rose 108 bps Q-o-Q to 55.4 per cent.

 

Gross write-offs stood at ₹1,281 crore. Other expenses included ₹30 crore in stamp duty.

 

The net profit was down 20 per cent Q-o-Q and up 10 per cent Y-o-Y at ₹450 crore, well below consensus.

 

The net interest income (NII) grew 15 per cent Y-o-Y and 3 per cent Q-o-Q to ₹1,730 crore and NIM was flat Q-o-Q at 11.2 per cent.

 

NIMs are expected to sustain. Fee income as a proportion of total income was stable at 52 per cent.

 

Opex increased 24 per cent Y-o-Y and 17 per cent Q-o-Q and the cost to income (C/I) ratio rose to 56.8 per cent from 50.3 per cent in Q1FY26.

 

RoA stood at 2.6 per cent and return on equity (RoE) was 12.1 per cent.

 

CIF grew 10 per cent Y-o-Y and 1.4 per cent Q-o-Q to 21.5 million.

 

About 50 per cent of new card sourcing of 940,000 comes from bancassurance, while open market delivered 50 per cent (44 per cent in Q1FY26).

 

For FY26, the C/I ratio is expected to be in the 54-56 per cent range with the likelihood of being at the higher end.

 

SBI Cards expects a decline in write-offs and gross credit costs with credit cost expected to stay below 9 per cent. Yields declined in Q2 but should bounce back in Q3.

 

Provisions were in line and are likely to improve. The revolver mix is expected to recover.

 

Asset quality is expected to improve and NIMs are guided to remain stable.

 

Digital payment volume is expected to triple by FY30 and India has 112 million credit cards in circulation, which could double by FY30.

 

SBI Cards remains India’s second-largest credit card issuer, with 19 per cent market share in CIF and 16.8 per cent in spending.

 

Q2 saw a net addition of 936,000 accounts. The company has partnered with Flipkart, IndiGo airline and a digital firm. The focus is on lowering credit costs.

 

Analysts have cut earnings expectations on the results and there are some “reduce” recommendations.