Lower credit costs may drive more gains for SBI Cards and Payment Services

SBI Cards is expected to benefit from easing credit costs and improving asset quality, with rising spends and better portfolio performance likely to support stronger growth ahead

Data from the credit card market indicates an uptick through August-October, 2025 over the year-ago period. In October, spends improved by 6.2 per cent year-on-year (Y-o-Y) but fell month-on-month (M-o-M) by 1.1 per cent after a surge in post-GST-cut spending in September.

 

The average spend per card in October was at ₹18,841, down 2 per cent M-o-M and 1 per cent Y-o-Y. Credit limit between ₹25,000 and ₹2 Lakh constitutes over 50 per cent of the market, holding the highest share of credit limits and outstanding balances.

 

The rise in credit card spending through this period may be attributed to increasing consumer demand led by rising income, deeper and wider card penetration, rapid digital expansion, and overall economic momentum. The growth was primarily led by private sector banks, reflecting their dominance. There’s a huge gap in per-card spends with private banks registering over 30 per cent higher spending compared to public sector banks (PSBs).

 

The industry added 0.63 million net new cards in October against 1.08 million in September and 0.78 million in October 2024, indicating a sharp slowdown in card issuance. The imposition of higher risk weights by the Reserve Bank of India (RBI) on unsecured consumer credit may have led to slower new issuances. Lenders may have also started exercising caution amid rising delinquencies in unsecured loan segments.

 

The overall transaction volume increased to 518 million in October, up by 19.6 per cent Y-o-Y and 4.7 per cent M-o-M. The average ticket size per transaction was at ₹4,133 in October, down by 11 per cent Y-o-Y and 6 per cent M-o-M. 

 

SBI Cards and Payment Services (SBI Card), a pure standalone listed play, was among the better performers. In the second quarter of 2025-26 (Q2FY26), it reported 10 per cent Y-o-Y earnings growth on the back of 8 per cent Y-o-Y operating income growth and 7 per cent Y-o-Y growth in provisions. Card issuance (up 10 per cent Y-o-Y) was stable while spends grew 30 per cent Y-o-Y.

 

The gross non-performing loans (GNPL) ratio declined 20 basis points (bps) to 2.9 per cent and net NPL ratio declined 10 bps Q-o-Q to 1.3 per cent of loans. There was 17 per cent Y-o-Y growth in retail spends, and corporate spends were 61 per cent higher Y-o-Y. The company reported 16 per cent Y-o-Y growth in total revenues, led by 15 per cent growth in net interest income (NII).

 

Provisioning was raised by 7 per cent Y-o-Y, and operating expenses grew 25 per cent Y-o-Y, with reported credit costs of 9 per cent for Q2FY26, which is a spike, and NIM was at 10.5 per cent, a decline of 5 bps Q-o-Q.

 

SBI Card had lower receivables growth guidance of 10-12 per cent in Q4FY25, with guidance of low cards-in-force (CIF) addition of 0.93-0.96 million per quarter, and elevated credit costs of 9 per cent. While credit costs remain and CIF additions are in that range, the scenario is improving. The balance sheet cleanup is showing results and management targets sub-9 per cent credit costs for FY26.

 

A large share of the FY20-FY23 customer cohort turned delinquent, prompting the company to scale back new customer acquisition from Q4FY23. Post-FY23, the company has prioritised improving asset quality, curtailing customer acquisition, and revolver share. It has leveraged digital acquisition for open market channels and artificial intelligence (AI)-driven analytics for portfolio monitoring. There is usually a 12-month lag in asset quality reflection on credit costs, which implies improving NPL ratios will translate into lower credit costs in the second half of 2026-27 (H2FY27).

 

For six quarters, SBI Card has tightened new borrower acquisition and focused on portfolio monitoring. Strong asset quality improvement is expected in the next three quarters, enabling faster CIF growth from H2FY27, according to the management.

 

Credit costs could drop to 7.5 per cent in FY27 and FY28 while spends may grow at better than 25 per cent if CIF improves to 10-11 per cent in FY27 as guidance suggests. This implies return on assets (RoA) could rise from the current 3-3.5 per cent to around 4.5 per cent. Analysts appear to be cautiously optimistic, with some changing recommendations from “Reduce” to “Accumulate” or “Add”.