SBI Cards and Payment Services Limited

'CRISIL AAA/Stable' assigned to Non Convertible Debentures and Lower Tier II Bonds; Rated amount enhanced for Bank Debt

 

Rating Action

Total Bank Loan Facilities Rated	Rs.42300 Crore (Enhanced from Rs.39000 Crore)
Long Term Rating	CRISIL AAA/Stable (Reaffirmed)
Short Term Rating	CRISIL A1+ (Reaffirmed)

 

Rs.2000 Crore Non Convertible Debentures	CRISIL AAA/Stable (Assigned)
Rs.2000 Crore Lower Tier II Bonds	CRISIL AAA/Stable (Assigned)
Non Convertible Debentures Aggregating Rs.8705 Crore (Reduced from Rs.10155 Crore)	CRISIL AAA/Stable (Reaffirmed)
Lower Tier II Bonds Aggregating Rs.1800.2 Crore (Reduced from Rs.2000.2 Crore)	CRISIL AAA/Stable (Reaffirmed)
Rs 34000 Crore Commercial Paper	CRISIL A1+ (Reaffirmed)

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

 

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to the Rs 2,000 crore non-convertible debentures and Rs 2,000 crore lower tier II bonds of SBI Cards and Payment Services Ltd (SBI Cards),and has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the existing debt instruments and bank facilities of the company.

 

CRISIL Ratings has withdrawn its rating on Rs 200 crore lower tier II bonds and Rs 1,450 crore non-convertible debentures as these have been repaid on maturity. The withdrawal is in line with the withdrawal policy of CRISIL Ratings. (Refer to 'Annexure - Details of Rating Withdrawn')

 

The ratings factor in continued support from majority shareholder, State Bank of India (SBI; ‘CRISIL AAA/CRISIL AA+[1]/Stable/CRISIL A1+’), on ongoing basis as well as in the event of distress. Majority ownership and shared brand imply a strong moral obligation on SBI to continue supporting SBI Cards in meeting debt obligation in a timely manner.

 

The standalone credit risk profile of SBI Cards is supported by its improving market position. The company is the second-largest player in the credit card industry with 1.85 crore cards-in-force (CIF), and market share of 18.9% as on December 31, 2023. Profitability is above average, with return on assets (RoA) of 4.6% in the nine months of fiscal 2024 and 5.3% in fiscal 2023. While RoA is healthy, profitability remains susceptible to asset quality challenges because of the unsecured loan book.

 

Following the recent revision in risk weights by the Reserve Bank of India through its circular dated November 16, 2023, the capital adequacy ratio of the company declined to 18.4% as on December 31, 2023, from 23.3% as on September 30, 2023. In terms of impact on the liability side, around 81% of the company’s borrowings are in the form of bank loans. Hence, the cost of borrowing has risen marginally. Nevertheless, the focus on diversification in the borrowing mix with higher share of capital market instruments, among others, is expected to benefit in the long run.

 

Gross non-performing assets (GNPAs) inched up to 2.64% as on December 31, 2023, from 2.35% as on March 31, 2023, driven by increase in delinquencies across overdue buckets. Ability of the company to manage collection and asset quality, in light of risks inherent in the credit card business, will be a key monitorable over the medium term.

[1]The ratings pertain to tier-I bonds (under Basel III)

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of SBI Cards. The ratings factor in strong support from the parent, SBI, considering the strategic importance of SBI Cards, the parent’s majority shareholding and their common brand.

Key Rating Drivers & Detailed Description

Strengths:

Expectation of strong support from SBI

A credit card is an integral product offering of a bank. SBI Cards houses the credit card business of SBI, and hence, it is strategically important to the latter. The company receives strong financial, managerial and branding support from the parent on ongoing basis. It benefits from the strong customer franchisee of SBI, commanding a premium in the co-branded card segment. SBI has infused growth capital in SBI Cards. As on December 31, 2023, SBI held 68.6% stake in the company and will continue to hold majority stake over the medium term. SBI deputes its senior management in SBI Cards, guides strategic decisions and monitors operations. However, the company has substantial autonomy in decision-making. The parent will provide strong support to SBI Cards both on ongoing basis and in the event of distress.

  

Improving market position

The CIF growth of the company has been faster than that of the industry in the past few fiscals; its market share in terms of CIF grew to 18.9% as on December 31, 2023 (19.7% as on March 31, 2023), from 15.3% as on March 31, 2017. SBI Cards is the second-largest credit card player by CIF and remains among top three players by spends. Gross card receivables stood at Rs 48,850 crore as on December 31, 2023, compared with Rs 40,722 crore as on March 31, 2023. Market share will improve over the medium term because of the company’s ability to tap into SBI’s large clientele and distribution network.

 

Profitability, despite momentary moderation, remains strong

RoA (calculated) averaged 5% over the five fiscals through 2023, supported by healthy net interest income and strong fee income. However, for the nine months of fiscal 2024, RoA moderated to 4.6% (annualised) from 5.6% in fiscal 2023 owing to revision in regulation pertaining to event/instance-based fee income, increased credit cost and increase in cost of funds. Fee income as a percentage of total assets reduced to 16.2% in the nine months of fiscal 2024 from 20.3% in fiscal 2023 and 20.9% in fiscal 2022. Also, credit cost inched up to 6.2% (annualised) in the nine months of fiscal 2024 after improving in the preceding two fiscals. Nonetheless, profitability remains above-average supported by net interest margin of 10.3%. Over the medium term, while the company’s strong market position in the credit card segment will support its operating margin, ability to support asset quality metrics will remain critical.

 

Weakness:

Susceptibility to risks inherent in the credit card business

The entire loan book is unsecured; thus, the portfolio is inherently risky. Asset quality deteriorated in the aftermath of the Covid-19 pandemic, with GNPAs surging to 4.99% as on March 31, 2021, from 2.01% as on March 31, 2020. However, GNPAs improved to 2.35% as on March 31, 2023, followed by marginal increase to 2.64% as on December 31, 2023.

 

The management has taken several measures, including tighter credit policies, higher sourcing from bank channels, increased income cut-offs for new accounts and lower credit limits to risky customers. It has also made adequate provisions. Nevertheless, ability to maintain asset quality and profitability will remain a key monitorable.

Liquidity: Strong

As on December 31, 2023, the company had cumulative positive mismatch in all time buckets because of the short tenure of assets. It had cumulative outflow of Rs 34,422 crore (upto 12 month bucket), against inflow of Rs 45,263 crore against same buckets as on said date. Moreover, it had unutilised bank lines of Rs 8,005 crore as on December 31, 2023.

 

ESG profile

The environment, social and governance (ESG) profile of SBI Cards supports its strong credit risk profile.

 

The ESG profile of financial institutions typically factors in governance as a key differentiator. The sector has reasonable social impact because of its substantial employee and customer base, and it can play a key role in promoting financial inclusion. While the sector does not have direct adverse environmental impact, lending decisions may have a bearing on the environment and other sustainability factors.

 

SBI Cards has demonstrated an ongoing focus on strengthening various aspects of its ESG profile.

 

Key ESG highlights:

• SBI Cards installed light-emitting diode (LED) lights across 3 lakh square feet of offices and installed smart printers to limit unwanted prints. Furthermore, it installed sensors to auto control them to optimise energy consumption. The company has adopted paperless communication with customers, such as statements on e-mail, SMS and eKits. It has also implemented a process for paperless purchase orders (POs) and issued 9.5 thousand POs digitally.

 

• The company is actively setting up waste management units and rainwater harvesting systems across various branches, offices and other establishments.

 

• Women comprised 27% of the total employees and 18% of senior management as on March 31, 2023. One board member out of nine is a woman.

 

• The company has 56% of board members as independent directors, with a split in the chairperson and executive positions and an extensive investor grievance redressal mechanism and disclosures in place.

 

There is growing importance of ESG among investors and lenders. The commitment of SBI Cards to ESG will play a key role in enhancing stakeholder confidence, given the substantial share of foreign investors as well as access to domestic capital markets.

Outlook: Stable

SBI Cards will continue to benefit from the financial and managerial support of the parent and strong brand. Its market position will improve over the medium term while profitability will be sustained.

Rating Sensitivity Factors

Downward Factors

• Downgrade in the rating of SBI may result in a similar rating action on the company
• Material change in the shareholding (below 50%) or support philosophy of SBI

About the Company

SBI Cards is the second-largest player (by CIF) in the credit card business with 1.68 crore CIF and market share of 19.7% as on March 31, 2023. Spend for fiscal 2023 was Rs 262,498 crore, compared with Rs 186,353 crore in fiscal 2022 (Rs 122,416 crore in fiscal 2021). Networth stood at Rs 9,830 crore as on March 31, 2023.

 

Profit after tax (PAT) was Rs 2,258 crore on total income (net of finance cost) of Rs 12,638 crore in fiscal 2023, as against Rs 1,616 crore on Rs 10,274 crore, respectively, in fiscal 2022. RA (calculated) stood at 5.6%, compared with 5.2% during the said period.

 

As on December 31, 2023, PAT was Rs 1,745 crore on total income (net of finance cost) of Rs 10,082 crore and annualised RoA was 4.6%, compared with Rs 1,662 crore, Rs 9,232 crore and 5.7%, respectively, a year earlier.

Key Financial Indicators

As on / for the period ended	Unit	March 2023*	March 2022*
Total assets	Rs crore	45,546	34648
Total income (net of finance cost)	Rs crore	12,638	10274
PAT	Rs crore	2,258	1616
Gross stage 3 assets	%	2.35	2.22
Gearing	Times	3.2	3.0
RoA (calculated)	%	5.6	5.2

 

As on / for the period ended	Unit	December 2023*	December 2022*
Total assets	Rs crore	55,863	42,987
Total income (net of finance cost)	Rs crore	10,082	9,232
PAT	Rs crore	1,745	1,662
Gross stage 3 assets	%	2.64	2.22
Gearing	Times	3.2	3.1
RoA (calculated)	%	4.6	5.7

*CRISIL Ratings adjusted nos.

Any other information: Not Applicable