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

The Q4FY26 financials of SBI Cards and Payment Services (SBI Card) show improved asset quality and lower credit costs. However, receivables growth remained muted at 2 per cent year-on-year (Y-o-Y) in FY26. Non-interest income is growing faster than net interest income (NII), while the cost-to-income (C/I) ratio remains elevated and is likely to stay high even as credit costs continue to moderate.

 

Credit costs declined sharply by 70 basis points quarter-on-quarter (Q-o-Q) and 140 basis points Y-o-Y to 8 per cent in Q4FY26. Management has taken a ₹220 crore overlay over expected credit losses (ECLs) to buffer potential volatility. Gross write-offs declined 6 per cent Q-o-Q, while Stage 2 assets fell 6 per cent Q-o-Q to ₹2,100 crore (3.7 per cent versus 3.9 per cent in Q3FY26). Gross non-performing assets (GNPAs) improved to 2.4 per cent.

 

Q4FY26 net profit stood at ₹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 goods and services tax (GST) write-back and a ₹44.5 crore reversal related to the Payments Infrastructure Development Fund (PIDF).

 

NII grew 3 per cent Y-o-Y (down 5 per cent Q-o-Q) to ₹1,670 crore. Revolver balances declined to 22 per cent from 23 per cent in Q3. The company's focus remains on the equated monthly instalment (EMI) segment. Net interest margin (NIM) was 10.3 per cent. Spends grew 31 per cent Y-o-Y (1 per cent Q-o-Q) to ₹1.15 trillion, with corporate spends rising 195 per cent Y-o-Y.

 

Card growth was 6 per cent Y-o-Y, while fresh card issuances declined 17 per cent Y-o-Y. Card spends may grow at close to 20 per cent annually over FY26-FY28 to around ₹6.2 trillion, but loan-book growth may remain slower at 9 per cent even if there is a pick-up from the 2 per cent Y-o-Y growth recorded in FY26 over FY25.

 

The C/I ratio rose to 57.2 per cent in Q4FY26 from 55.3 per cent for FY26 and is likely to remain above 55 per cent until FY28, given management guidance of 55-58 per cent. Non-interest income grew 13 per cent Y-o-Y in Q4FY26, with higher corporate spends driving fee income. However, NII may continue to grow at a slower pace.

 

The credit card issuer reported 15 per cent Y-o-Y earnings growth despite a 3 per cent Y-o-Y decline in operating profit, as provisions — now 7.7 per cent of loans — declined 10 per cent Y-o-Y. Stage 2 and Stage 3 loans together accounted for 6 per cent of the portfolio. Stage 2 assets improved to 3.7 per cent, while Stage 3 assets improved to 2.4 per cent (versus 3.9 per cent and 2.9 per cent, respectively, in Q3FY26).

 

Total spends 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 while retail spends declined 2 per cent Q-o-Q. Receivables stood at ₹56,900 crore, flat Q-o-Q, resulting in only 2 per cent Y-o-Y growth. The share of interest-earning receivables declined to 54 per cent from 56 per cent in the previous quarter. Cards-in-force increased 1 per cent Q-o-Q and 6 per cent Y-o-Y to 22.1 million, with new account sourcing at 0.92 million, up 6 per cent Q-o-Q.

 

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

 

Management expects stable NIMs and lower credit costs. The target for quarterly card issuance is 900,000-1 million cards. The company aims for a return on assets (RoA) of 4-4.5 per cent over the medium term. Recoveries of ₹190 crore in Q4 could be matched in the coming quarters.

 

While the market remains competitive, SBI Card is the second-largest credit card issuer and the largest pure-play listed player. It has co-branded cards in partnership with Tata Neu, Flipkart, IndiGo and PhonePe, among others. Its cards-in-force market share stands at 18 per cent, with 917,000 new accounts added in Q4.

 

Its spends market share was 18.1 per cent in FY26, with total spends of ₹4.3 trillion during the year. Online spends accounted for 65.2 per cent of total spends in FY26. UPI-linked RuPay cards are gaining traction in Tier-II cities.

 

The stock has undergone a sharp correction over the past six months and is currently trading at multi-year lows. The company's competitive advantage stems from its ability to penetrate the large untapped customer base of its parent, State Bank of India. Geopolitical and macroeconomic pressures may limit upside potential, but current valuations appear attractive and should help cushion downside risks.