Valuations, growth prospects to limit downside risks for SBI Card

Improving asset quality and lower credit costs could support earnings growth, even as receivables expansion remains subdued and cost pressures persist

SBI Cards and Payments Services’ financials for the fourth quarter of 2025-26 (Q4FY26) show improved asset quality and lower credit cost. However, its receivables growth was low at 2 per cent year-on-year (Y-o-Y) in FY26. 

Its non-interest income is outrunning net interest income (NII) growth. The cost to income (C/I) ratio is high and likely to stay on the higher side, even though credit costs will continue to moderate. Credit costs declined sharply by 70 basis points (bps) quarter-on-quarter (Q-o-Q) and 140 bps Y-o-Y to 8 per cent in Q4. The management has taken ₹220 crore overlay over expected credit loss to buffer potential volatility. Gross writeoffs declined 6 per cent Q-o-Q, and Stage-II assets fell 6 per cent Q-o-Q to ₹2,100 crore, and gross non performing assets improved to 2.4 per cent. 

The Q4 net profit was ₹610 crore, up 14 per cent Y-o-Y and 9 per cent Q-o-Q. Reported profitability benefited from non-recurring items such as a ₹76.6 crore GST writeback. 

NII grew 3 per cent Y-o-Y, but was down 5 per cent Q-o-Q, to ₹1,670 crore. Revolver balances were lower at 22 per cent from 23 per cent in Q3. The company’s focus is the EMI segment. Net interest margin (NIM) was at 10.3 per cent. Spends grew 31 per cent Y-o-Y and 1 per cent Q-o-Q to ₹1.15 trillion, with corporate spending up 195 per cent Y-o-Y. 

Card growth was 6 per cent Y-o-Y with fresh card issuances declining 17 per cent Y-o-Y. Card spends may grow at near 20 per cent annually over FY26-FY28 to around ₹6.2 trillion, but loan book growth may be slower at 9 per cent even if there is a pickup from 2 per cent Y-o-Y growth in FY26. 

The C/I ratio was higher at 57.2 per cent in Q4 and likely to stay above 55 per cent until FY28, given a guidance range of 55-58 per cent. Non-interest income grew 13 per cent Y-o-Y in Q4 with higher corporate spends driving spend-based fee income. But NII may grow slower. The credit card major reported a 15 per cent Y-o-Y earnings growth despite a 3 per cent Y-o-Y decline in operating profits as provisions declined 10 per cent Y-o-Y. Stage-II and -III loans are aggregated at 6 per cent. Stage-II assets improved to 3.7 per cent while Stage-III assets improved to 2.4 per cent. 

Total spending rose to ₹1.15 trillion, up 1 per cent Q-o-Q and 31 per cent Y-o-Y, with corporate spends up 12 per cent Q-o-Q. Retail declined 2 per cent Q-o-Q. Receivables at ₹56,900 crore meant only 2 per cent Y-o-Y growth and a flat Q-o-Q performance. Share of interest-earning receivables declined to 54 per cent, compared to 56 per cent last quarter. Cards-in-force increased 1 per cent Q-o-Q and 6 per cent Y-o-Y to 22.1 million, with new accounts sourcing up 0.92 million, up 6 per cent Q-o-Q. 

Credit cost declined to 7.7 per cent from 8.4 per cent Q-o-Q inclusive of management overlay of ₹220 crore. The NIM was stable. The credit costs trend is likely to improve further. Industry-wide credit card receivables growth is subdued, and the card growth assumptions must be downgraded. There could also be some NIM compression. But the expected improvement in credit costs may in itself drive well over 30 per cent net profit growth in FY27. 

Management expects stable NIM and lower credit costs. The target for quarterly card issuance is in the range of nine hundred thousand to one million. Aim is for 4-4.5 per cent return on assets over the medium-term basis. Recoveries of ₹190 crore in Q4 could be matched in the coming quarters. 

SBI Cards is the second largest credit card issuer and largest pure play player. It has co-branded cards in partnership with Tata Neu, Flipkart, Indigo and Phonepe. The cards-in-force market share for SBI stands at 18 per cent, with 917,000 new accounts added in Q4. The spends market share is 18.1 per cent in FY26, or ₹4.3 trillion. Online spends share stands at 65.2 per cent for FY26. UPI active Rupay cards are gaining traction in Tier-II cities. 

The stock has seen a big correction over the past six months and is currently trading at multi-year lows. The credit card firm’s competitive advantage stems from opportunities to penetrate untapped customers of parent SBI. Geopolitics and macro-pressures may limit upsides but valuations seem attractive. 

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The writer is a New Delhi-basedindependent journalist