Financials

India I Equities
Sector Update

21 January 2020

NBFC Sensex: 41,329

SBI Cards: Growing faster in a fast growing industry Nifty: 12,170

Even with conservative assumptions, we expect the Indian credit card

industry to clock CAGR of 19% during FY20-25 vs. 31% during FY14-19.
At 25%, SBI cards likely to maintain better than system growth.
Robust consumption growth to continue. Despite deceleration in income
growth, with rising share in income (from 70% in FY08-13 to 76% in FY14-
19), private consumption growth by 12%. Despite factoring fall in the share
of consumption in income and no material acceleration in income, we expect
close to 10% growth in private consumption.
Use of credit card in personal spending to rise further. Credit card
transaction (at PoS) to personal consumption spend ratio jumped from 2.4%
in FY14 to 5.3% in FY19. Our estimates put the number at 9.5% by FY25.
A differentiated approach to model credit card business. Growth rates of
both, the number of outstanding credit cards and spending per card have
been volatile. In contrast, growth in number of credit card (PoS) transactions
and average value per transaction has been steady since FY12. Consequently,
we used the second method to derive future outlook of credit card business.
High-teen growth to be sustainable. Using conservative assumptions, we
derive a 19.3% CAGR in credit-card spending over FY20-25 (vs. 31.4% over
FY14-19). We expect transaction volumes to clock a 19% CAGR over FY20-
25 (vs. 28% over FY14-19); and value per transaction to conservatively clock
`a 0.3% CAGR over FY20-25 (vs. 2.5% over FY14-19).
Deceleration in spend per card, but optimistic on card growth. Per card
spending growth has decelerated and we expect it to turn negative in next two
years due to (i) likely deceleration in private-spending growth, (ii) more cards
per existing card holders and (iii) issuance of new cards to lower income
groups. Despite the spend-per-card deceleration, we expect outstanding credit
cards would accelerate from CAGR of 17.4% in FY14-19 to 18.6% in FY20-
25 due to (i) formalisation of the economy, (ii) rising proportion of youth and
(iii) competition among card issuers.
UPI not a major threat, MDR on credit card to remain. Our channel Prem Khurana
Research Analyst
checks suggest that UPI compete with debit but not with credit card. We +9122 6626 6470
expect continuation of MDR on credit cards as it uses private network and premkhurana@rathi.com
there is no cost savings like lower cash handling.
Mohit Mangal
Resilient growth for SBI Cards. During FY14-19, SBI cards grew faster Research Analyst
+9122 6626 6732
than the system in terms of transaction volume (34% vs. 28%) and also credit mohitmangal@rathi.com
card outstanding (24% vs. 20%). We expect this to continue with growth in
credit card spend at 25% vs. 19% for the system during FY20-25. SBI Cards Ashita Choudhary
Research Associate
is likely to mine the huge debit card base for SBI (300m, 35% market share) ashitachoudhary@rathi.com
more effectively.
Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in the Appendix.

Anand Rathi Research India Equities

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

A few major questions answered

On the credit card industry
What were the factors behind strong credit card spend growth during
FY14-19?

At the sector level, credit-card spending registered a 31.3% CAGR over

FY14-19 to `6trn. We look at the main drivers of this in the following way:
 Strong personal disposable-income growth. This is the primary
driver of overall consumer spending. Over FY14-19, personal
disposable income registered a 10.2% CAGR.
 Rising share of private consumption. The share of private
consumption grew faster (at the cost of savings) over FY14-19,
resulting in faster, 11.8%, compounded growth.
 Rising credit-card use. Use of credit cards (at PoS) clocked a
31.4% CAGR over FY14-19. The share of credit-card spend to
overall private spending more than doubled, from 2.4% in FY14 to
5.3% in FY19.
 Rise in both number of cards and average spending per card.
The 31.3% increase in credit-card spend was made up by CAGR of
outstanding credit cards (17.4%) and the average value of per-card
transaction (11.9%).
 Stable growth in transaction volumes and value per
transaction. Growth in the number of outstanding credit cards
and transaction per card widely vary. By contrast, the CAGRs of
PoS credit-card transaction volumes and value per transaction have
generally been stable (at respectively 25% and 3%) since FY10.

Fig 1 – The consumption story; credit card spending to clock a 19.3% CAGR over FY20-25
CAGR FY14-19 CAGR FY20-25
Assumption
% %
India's gross national disposable
10.9 10.7 Growth rate similar to past rates
income (NDI)

Personal disposable income 10.2 10.4 Slight improvement as the trend of personal income tax is toward reducing the rate

Despite being bullish, we expect consumption growth to decline a conservative 200bps in the
Private household consumption 11.8 9.6
next five years, assuming that net financial savings available for growth are falling
Credit-card spends as % of private 5.3 9.5 Average growth rate over FY14-19 is 50bps p.a. We expect a 69bp average growth rate p.a.
consumption (FY19) (FY25) over FY20-25

Credit-card spends 31.4 19.3 Derived from number of transactions and value per transaction

No of transactions 28.2 19.0 We expect the growth to be in the high- teens vs. the TTM grow of 25%

Value per transaction 2.5 0.3 Value per transaction will grow by meager 0.3% vs. the TTM grow of 2.3%

Credit cards o/s 17.4 18.6 We expect growth to be higher with greater marketing efforts and more formalisation of economy

The last five years have seen a 12% CAGR. We conservatively expect growth in spending per
Spends per card, per year 11.9 0.6
card, per year to come at 0.6%
Source: RBI, Anand Rathi Research

Anand Rathi Research 3

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

Can similar growth be sustained in the future?

We expect credit card spends growth to clock in 19.3% CAGR, albeit at a

slower rate as compared to 31.3% CAGR during FY14-19 for several
reasons:
 Per-card spend falling. The 11.9% CAGR in per-card spend over
FY14-19 was a major driver, accounting for ~35% of the 31.3%
growth in overall credit-card spending. The situation is changing.
Growth in annual spends per credit card peaked in 2012 and has
since seen been decelerating. In FY20, per-card spend has come
close to zero.
 Share of private spending to personal disposable income
expected to fall. We expect the FY20-25 CAGR in personal
disposable income to improve slight vs. FY14-19 (due to the lower
personal-taxation rate). This is based on our assumption of a 5.5%
CAGR in real personal income and 4.6% inflation over FY20-25.
Yet, we expect the share of private spending to disposable income
to fall because strong consumer spending has led to the household
savings rate coming down from 23% to 17% in the last decade.
Already there are signs that households are holding back
consumption to repair balance sheets. We estimate the CAGR in
private spending to decelerate from 11.8% over FY14-19 to 9.6%
over FY20-25.
 Expect per-card spending growth to turn negative in the next
two years. Deceleration of private-spending growth is one of the
main reasons for our expectation of per-card spending turning
negative till FY22, with modest growth thereafter.
 Multiple card holders to rise. Anecdotal accounts suggest that
credit-card issuers are mining customers of rival credit-card issuers.
Consequently, we expect the number of credit cards per existing
credit-card holders to increase. This would pile pressure on per-
card spending.
 Credit cards to lower-income customers. To maintain/improve
market share in the credit-card business, issuing banks are likely to
reach out to first-time users. The number of outstanding credit
cards is already 50m, much higher than the 35m who paid income
tax in FY19. Consequently, we expect a large part of first-time
credit-card users to come from that part of Indian population
which do not pay income tax and thereby have, on average, lower
documented income levels. This is likely to reduce per card
spending.
Are there factors which can boost credit card spending?

Yes. There are several factors likely to stimulate the share of credit-card
spending in overall private spending. Some of these are highlighted below:
 Increased digitisation of payments. The ratio of card payments
to private consumption has increased considerably and
consistently, an average increase of 50bps/year during FY14-19, to
5.3%. There is little sign of this peaking.
 Greater security of card transactions. The fear of monetary loss
due to credit-card fraud has traditionally been a major deterrent to

Anand Rathi Research 4

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

card use. Through a circular dated 6 July 17 on “Customer

Protection – Limiting Liability of Customers in Unauthorised
Electronic Banking Transactions”, the RBI has virtually made the
customer liabilities zero, provided the customer reports to the
issuing bank the misuse of a card with 72 hours. Even if the
customer fails to do so, most of the liability would still rest with the
card-issuing bank.
 High share of debit cards in PoS transactions. Almost 50% of
PoS transactions are carried out through debit cards. Presumably,
most customers using debit cards at PoS do not have credit cards
(the latter offers various incentives such as interest-free credit of up
to 50 days, and reward points. As issuing banks reach out to widen
their credit-card business, frequent debit-card users at PoS are
likely to be prominent target customers.
 Cannibalisation of debit-card customers. In India, the number
of outstanding debit cards, at 830m, is about 15 times more than
the number of outstanding credit cards. While a vast majority – say
90% of debit card-holders – may not be the ideal target, there
would be a sizable number which banks can target as new credit-
card customers. As the yield on credit-card transactions is much
higher than on debit-card transactions (discussed in detail below), it
makes sense for banks to cannibalise a part of debit-card
customers. The proposed removal of MDR on debit-card
transactions would only boost this proclivity.

Fig 2 – 50% share of debit cards in POS transactions (sector)

65%

60%

55%

50%

45%

40%

35%

30%
FY14

FY15

FY16

FY17

FY18

FY19

H1FY20

Share of debit cards Share of credit cards

Source: RBI

Does a low credit card penetration vs. the peers in itself make India a
major growth market?

We do not think so. It is true that at 4, credit card penetration (number of

credit cards per 100 people) in India is low vs. not only UK or US but most
emerging market countries like Argentina, Brazil, China, Indonesia, Mexico,
Russia and Turkey. Moreover, credit card penetration in India has doubled
in last 5 years, which raises hope for non-linear growth. Yet, as sharp
differences in credit card penetration in Europe (like France, Germany and
Netherlands) and Japan, UK or US suggests, spending habits, the choice of
payment instrument and more specifically use of charge/debit card versus
credit card depends on socio-economic-psychological factors which can be
very different across countries and regions.

Anand Rathi Research 5

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

Fig 3 – USA, UK and Japan has seen high credit penetration

(Cards per 100 ppl)
350

280

210

140

70

Germany
Russia

France
Australia

China

India
Indonesia
Mexico
Brazil
Japan

United Kingdom
United States
Source: Bank for International Settlements
Note: The data for USA and Japan is as of 2017 whereas the rest is for 2018

How to estimate future credit card spending amount?

We feel that estimation of credit card spend by estimating the number of

credit card issuance and the average value of transaction per card is fraught
with serious problems since (as discussed above) growth of both have been
highly volatile. In contrast, barring the period of demonetisation, growth in
(PoS) transaction volume using credit card and value per transaction has
remained stable in the last 10 years. Therefore, we feel that the latter
method to estimate credit card spend is more suitable.
What is likely to be the main growth driver of credit card spends –
growth in transaction volume or value per transaction?

Past trends are very clear on this issue – it is the transaction volume which
has driven the overall credit card spends with relatively small contribution
coming from growth in value per transaction. During 2010-19, the number
of transactions has clocked 25% CAGR and average value of transaction by
2.9% CAGR. We assumed 19% growth in number of transactions and 0.3%
growth in average value during 2020-25.

Fig 4 – Volume growth has been above 20% over the last five Fig 5 – Value per transaction growth declined in FY19
years (%)
(%) 9
40

35 6

30
3
25

20
0
15

10 -3
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

CC-Volume-TTM- Growth CC-Per transaction-TTM- Growth

Source: RBI, Anand Rathi Research Source: RBI, Anand Rathi Research

Anand Rathi Research 6

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

What should be sustainable growth in credit card spend ahead?

At our conservative assumptions on the CAGR of credit-card transaction

volume and per transaction value, we derive the CAGR of credit card spend
at 19.3% during FY20-25 vs. 31.4% during FY14-19. We expect that with
formalisation of the economy, rising share of youth in the population and
keenness of the banks to increase credit card business, the CAGR of
outstanding credit cards would accelerate from 17.4% during FY14-19 to
18.6% during FY20-25. Rapid expansion in the number of cards, however,
is likely to depress the average yearly value of spend per card. As
highlighted before, we expect this to turn negative till FY22. The CAGR is
likely to decelerate sharply from 11.9% during 2014-19 to 0.6% during
FY20-25.
Would the credit card business get seriously impacted by the rising
popularity of UPI-based digital transactions?

UPI-based transactions have sharply expanded market share in digital

payments. By value, it rose from 1% in FY17 to 38% in FY19 and to 53%
in H1 FY20. The share may go up further. Yet, our discussions with a wide
range of stakeholders suggest that UPI-based transactions are primarily not
in competition with credit-card-based transactions.
 No benefit for customers due to zero MDR in UPI. This
benefits merchants, not customers.
 Pre-paid versus post-paid. UPI-based transactions require money
in the account of the customer vs. up to 50-day interest-free credit
for credit-card transactions. Besides, reward points for credit-card
transactions are, in general, higher than those for UPI-based
transactions.
 Option to carry forward, EMI. Given the pre-paid nature of UPI
transactions, carrying forward balances or EMI options are
unavailable by this mode of payment.
Consequently, UPI-based transactions are primarily in competition with
debit-card transactions, not with credit -card-based transactions.
UPI entails zero MDR. Talk on removal of MDR on debit card is on.
Can similar step be taken with respect to credit cards?

It is unlikely that MDR would be removed for credit-card transactions for

the following reasons:
 Government funding the cost of UPI transactions. The NPCI
has designed the UPI. Was founded by the RBI and the IBA. While
no MDR is charged by the UPI, setting up and maintaining the
payment system costs money, incurred by public agencies. Credit
card transactions, on the other hand, involve payment systems of
private agencies such as American Express, Master and Visa.
Therefore, if MDR is made zero or even reduced substantially,
private agencies may withdraw their services, which would be
counter-productive.
 Little rationale for removal of MDR on credit card
transaction. The argument being extended by government
agencies to remove MDR on debit cards is that digital transactions
are removing the cash-handling-cost of banks. In lieu of that, it is

Anand Rathi Research 7

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

being argued, that MDR on debit-card transactions should be

discontinued. The same argument cannot be extended for credit
cards as it involves interest-free credit rather than instant
drawdown as in the case of debit cards.
 Zero MDR unlikely to continue in perpetuity. In fact, we feel
that zero MDR on UPI transaction may not continue in perpetuity
as setting up, expanding and maintaining the payment system
involves cost. Similarly, on debit cards branded with private
agencies such as Masters and Visa, banks still have to pay those
agencies to use the payments system. If MDR on debit cards is
made zero, banks are likely to pass on such costs to users which
currently charged on merchants.
Carry forward of credit card balance attracts interest rate of 36-48%.
Is this high interest rate sustainable?

Globally, the interest rate on credit-card loans (the carried-forward balance)

is much higher than the overall lending rate. For example, at present in the
US, the average interest rate on bank loans is 5% while the interest rate on
credit-card loans is 18%. Besides, the RBI has deliberately moved away
from direct regulation of interest rates. Moreover, credit card companies
have been maintaining high interest rates for decades. Consequently, we do
not expect the interest rate on credit-card loans to come down substantially.
What is the pecking order of unsecured loans in India?
The pecking order of unsecured loans: (i) unsecured bank loans, (ii) credit
card EMI and (iii) credit card carry-forward balance
 Unsecured bank loans. The interest rate charged on unsecured
retail bank loans, at 12.5-14.5%, is at a 300-400bp premium to
bank’s 9.5-10.5% lending rate.
 Credit-card EMIs. The interest rate on credit-card EMI ranges
between 12% and 18%. In many cases, though, interest-free credit-
card EMI can be availed of from merchants where the EMI cost is
shared between the merchant and the credit-card company.
 Credit carried-forward balance. As discussed above, the interest
rate charged on the credit carried-forward balance is 36-48%.
When the EMI on credit cards is interest free, it would be the first choice of
customer. Even for interest-bearing EMI loans, since the loan approval is
automatic and without any documentation requirement, customers are likely
to avail of this to purchase large-ticket items unless the interest rate on
credit-card EMI is significantly higher than the EMI on personal loans.
However, unlike credit-card loans, personal loans by banks can be used for
any requirement.

On SBI Cards
Why should the business growth of SBI Cards be better than the
sector average?
SBI Cards has always grown higher than the sector average. In terms of
volume (no. of transactions), the company registered 34% CAGR vs
sector’s 28% CAGR between FY14-19. Even in terms of credit cards
outstanding, the company registered 24% CAGR vs sector’s 20% CAGR
during FY14-19. In terms of per transaction spend, the company is

Anand Rathi Research 8

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

marginally higher than the sector average. Thus, when we factor 19.3%
CAGR for the sector over the next five years, we expect the SBI Cards to
grow by 25%.

Fig 6 – SBI Cards has performed better than the sector average
40%

35% 34%

30% 28%

25%

20%

15%

10%
6%
5% 3% 3%
0%
0%
Volume Per transaction

SBI Sector Market share gain

Source: RBI, Anand Rathi Research

How do SBI Cards derive its income?

Fig 7 – Source of income from SBI Cards (FY19)

Income
(100)

Interest income Fee income Other income

(51.1) (43.9) (5.0)

EMI Carry forward Spends Instance Subscription

(10.9) (40.2) (23.5) (14.2) (6.2)

Source: Company, Anand Rathi Research

Note: Income stands for Revenue from operations

How would SBI Cards be impacted by the removal of

MDR/interchange fees on credit cards?

We made a detailed study on SBI Cards interest and fee income. The
spends based fees (derived from MDR) is as high as 23.5% of income
(revenue from operations). Thus, we see that MDR plays an important part
of income and any loss of income on that front would adversely impact the
income growth. Considering this, it might have to increase its other sources
of income to offset some losses. Yet as argued above, discontinuation of
MDR on credit card transactions remain unlikely.
What percent of SBI’s debit card customer base could be induced to
use credit cards?

 The share of credit cards in PoS transactions is 50% for the sector;
for SBI Cards, it is 38%.
 The SBI has a huge, ~300m, debit-card customers and a 35%
market share; its credit-card customers number ~10m. Thus, the
bank behemoth has a vast overall cardholder base and an even
deeper distribution channel.
 Every year, even if 1% debit-card holders are offered/converted to

Anand Rathi Research 9

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

credit cards, the credit-card base increases by 3m, implying 30%

growth annually.

 MDR is the main source of income for debit cards and it accounts
for less than one fourth of income for credit cards. Moreover,
MDR on debit cards are under threat. Therefore conversion of part
of debit card holders to credit card makes sense.

Fig 8 – SBI Cards can improve the share of credit cards in PoS transactions
65%
62% 61% 60%
60%

55%
50% 50% 50% 51%
50%
45% 45%
45% 44%

40% 38%
37%
35% 36%
35%

30%
FY14 FY15 FY16 FY17 FY18 FY19 H1FY20
Share of credit cards in POS transactions (SBI)
Share of credit cards in POS transactions (Sector)
Source: RBI, Anand Rathi Research

Does the asset quality situation worsen with the company’s strategy
to focus on small towns and cities?
The company’s asset quality has been steady. At end-FY19, its GNPA was
2.44% (2.33% in H1 FY20) and was stable (averaging 2.5% in the last three
years). This, although higher than the 1.5-1.8% industry average, is
acceptable. High credit costs (averaging 6.6% over FY17-19) crossed 7% at
end-FY19.
Consider a distress situation (because of the slowdown in the economy or
due to unemployment). It is more likely that the credit card payment,
personal loans would be missed given that it is unsecured. Secured loans
(homes and vehicles) would prefer to be paid first because (i) in case of
default, the pledged asset will be seized by the bank/financial institution
and (ii) an emotional value/matter of pride is associated with homes,
vehicles, etc.
Although the company has strong risk-management practices, the
unsecured nature of the business makes it risky. We would watch NPAs as
the company plans expansion to smaller cities and towns. However, 85% of
customers are salaried, which offers us assurance that NPAs may not rise
unproportionately.

Fig 9 – Asset quality has been steady

3.0%
2.8%
2.5%
2.4%
2.3%
2.0%

1.5%

1.0%
0.9%
0.8% 0.8%
0.5%

0.0%
FY17

FY18

FY19

GNPA NNPA

Source: SBI Cards DRHP, Anand Rathi Research

Anand Rathi Research 10

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

Profit margins for SBI Cards:

SBI Cards has been able to consistently generate higher profit ratios owing
to higher and varied sources of income. It has also been able to rationalize
its costs. The cost-to-income (C/I) ratio slipped from 63% in FY18 to 60%
in FY19. The ROAA stood at 4.8% whereas ROAE stood at 29% at the
end of FY19.

Fig 10 – DuPont analysis (FY19)

SBI Cards Industry
50% 20.7% 45%
17.4%
45% 40%
40% 35%
35%
30%
30% 21.1%
25%
25% 19.5%
20%
20%
14.2% 6.4% 15%
15% 11.8% 4.5%
10% 2.6% 10% 1.7%
5% 4.8% 5% 3.5%

0% 0%
NII Non interest Operating Credit costs Tax ROA NII Non interest Operating Credit costs Tax ROA
income Expenses income Expenses
Source: Company, Anand Rathi Research Source: Company, Anand Rathi Research

Anand Rathi Research 11

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

Financials – A snapshot
Fig 11 – Income statement (` m)
Year-end: Mar FY15 FY16 FY17 FY18 FY19
Interest income 10,823 13,803 18,882 27,600 35,757
Interest expenses 3,728 4,303 5,284 7,115 10,172
Net interest income (NII) 7,095 9,500 13,597 20,485 25,585
Growth (%) - 34 43 51 25
Non -interest income 8,221 11,114 15,829 26,102 37,111
Fee income 6,950 9,340 13,116 21,773 30,720
Net operating income 15,317 20,615 29,426 46,587 62,696
Operating expenses 10,279 13,554 18,390 29,393 37,903
PPOP 5,037 7,061 11,036 17,194 24,793
Growth (%) - 40 56 56 44
Provisions and contingencies 2,331 2,679 5,320 8,001 11,477
Growth (%) - 15 99 50 43
PBT 2,707 4,382 5,716 9,193 13,316
Tax 40 1,543 1,988 3,182 4,689
PAT 2,667 2,839 3,729 6,011 8,627
Growth (%) - 6 31 61 44
Source: Company, Anand Rathi Research

Fig 12 – Balance sheet (` m)

Year end Mar FY15 FY16 FY17 FY18 FY19
Cash and cash equivalents 2,914 1,671 1,747 3,119 7,335
Bank Balance 0 1,073 1,082 1,608 433
Receivables 297 612 1,325 1,507 2,950
Loans 58,294 74,446 99,829 1,40,455 1,79,087
Other financial assets 13 14 25 1,139 306
Deferred tax assets 993 902 1,292 880 1,665
Property plant and equipment 16 21 17 419 575
Capital work in progress 0 0 0 133 43
Intangible assets 0 0 0 657 804
Right-of-use Assets 0 0 222 1,559 1,643
Other non Financial assets 45 65 2,112 5,383 7,538
Assets 62,573 78,803 1,07,650 1,56,860 2,02,396
Growth (%) - 26 37 46 29
Financial liabilities 49,550 62,073 86,758 1,25,901 1,53,828
Payables 905 859 1,191 5,296 6,651
Debt securities 2,400 3,400 75,098 29,489 40,793
Borrowings 44,594 55,887 2,197 74,659 83,744
Subordinated liabilities 0 0 5,389 9,980 11,968
Other financial liabilities 1,651 1,927 2,883 6,449 9,577
Current tax liabilities 0 0 17 104 762
Provisions 2,687 4,242 4,952 3,924 6,284
Other non-financial liabilities 681 937 1,434 3,400 5,705
Liabilities 52,917 67,253 93,162 1,33,329 1,66,579
Growth (%) - 27 39 43 25
Equity 9,656 11,550 14,488 23,531 35,817
Growth (%) - 20 25 62 52
Total Liabilities and Equity 62,573 78,803 1,07,650 1,56,860 2,02,396
Source: Company, Anand Rathi Research

Anand Rathi Research 12

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

Fig 13 – Ratio analysis

Ratios – Data in % unless specified FY15 FY16 FY17 FY18 FY19
Operating ratios
Cost-to-Income 67.1 65.7 62.5 63.1 60.5
Operating expenses to avg. assets 18.7 19.2 19.7 22.2 21.1
Employee cost to total costs 6.0 5.8 5.2 6.6 10.3
Employee cost to avg. assets 1.1 1.1 1.0 1.5 2.2
Revenue measures
Interest income to total avg. assets 19.7 19.5 20.3 20.9 19.9
Net interest income to net operating income 46.3 46.1 46.2 44.0 40.8
Fee income to net operating income 45.4 45.3 44.6 46.7 49.0
Fee income to avg. Assets 12.6 13.2 14.1 16.5 17.1
Non-interest inc. to net operating income 53.7 53.9 53.8 56.0 59.2
Profitability ratios
Yield on average loans 20.9 20.8 21.7 23.0 22.4
Average cost of funds 9.0 8.1 7.4 7.2 8.1
Spreads 11.9 12.7 14.2 15.7 14.3
Net interest margin (NIM - calculated) 13.1 13.6 15.0 16.3 15.1
Return on avg. assets (RoAA) 4.9 4.0 4.0 4.5 4.8
Return on avg. equity (RoAE) 31.2 26.8 28.6 31.6 29.1
Asset quality
Gross NPA to gross advances NA NA 2.3 2.8 2.4
Net NPA to net advances NA NA 0.8 1.0 0.8
Provision coverage ratio (PCR) NA NA 68 67 66
Credit costs 4.5 4.0 6.1 6.7 7.2
Capital
Tier-I 15.0 14.3 11.3 12.4 14.7
Tier-II 3.6 3.9 4.4 5.9 5.3
CAR 18.6 18.1 15.7 18.3 20.0
Source: Company, Anand Rathi Research

Anand Rathi Research 13

21 January 2020 NBFC – SBI Cards: Growing faster in a fast growing industry

About the company

Launched in Oct’98 by the State Bank of India and GE Capital, SBI Cards
was incorporated as SBI Cards and Payment Services Pvt. Ltd. It is
headquartered in Gurgaon, Haryana. In Dec’17, the State Bank of India and
The Carlyle Group acquired GE Capital’s stake, with the former holding
74%, the latter 26%. Today, with over 9m credit-card customers, it is the
second-largest credit-card issuer in the country. It has branches in more
than 100 cities in India, providing credit-card services and payment
products and services in the form of corporate and credit cards with
incentive and reward programmes.

Fig 14 – SBI Cards – A look at their journey

1998 2005 1999

Incorporation of Launch of the Registered with

Company website IRDAI

2016 2014 2013 2006

Launch of “SBI Launch of mobile Launch of EMV Launch of white label
unnati” card application & co- card & co- card with Tata Sons
branded card branded card Limited & co-brand
with Fbb with Air India card with IRCTC

2017 2018 2019

Launch of “Project
Shikhar” & co-branded
card with BPCL
Exit of GE Capital
Amalgamation of SBIBPMSL with Launch 'Ask ILA' & co-
SBI Cards branded card with Apollo
Hospitals
Launch of “shaurya” card & co-
branded card with Etihad,
Allahabad Bank, OLA Money

Source: Company, Anand Rathi Research

Fig 15 – Directors and management profile

Sr. No. Name
Associated with SBI since 1983. Over three decades’ experience in banking. A
top executive-grade special scale – II officer of the SBI on deputation to SBI
MD & CEO
1 Cards
Hardayal Prasad
Master’s in chemistry from the Agra College; Associate of The Indian Institute
of Bankers
Previously associated with Jio Payments Bank and SBI. Joined SBI Cards on
COO st
1 Apr’18
2
Richhpal Singh
B.A. from Maharshi Dayanand University, Rohtak
Joined the central board of SBI in 2015. Was earlier MD (The National
Non-executive Banking Group) and MD (compliance & risk) in SBI and chief general manager
3 Chairman of SBI’s north-eastern circle
Rajnish Kumar
Master’s in physics from Meerut University
Source: Company, Anand Rathi Research

Anand Rathi Research 14

Appendix
Analyst Certification
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research
analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange
Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have
no bearing whatsoever on any recommendation that they have given in the Research Report.

Anand Rathi Ratings Definitions

Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide (12 months)
Buy Hold Sell
Large Caps (>US$1bn) >15% 5-15% <5%
Mid/Small Caps (<US$1bn) >25% 5-25% <5%

Research Disclaimer and Disclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
Anand Rathi Share and Stock Brokers Ltd. (hereinafter refer as ARSSBL) (Research Entity) is a subsidiary of Anand Rathi Financial Services Ltd. ARSSBL is a
corporate trading and clearing member of Bombay Stock Exchange Ltd, National Stock Exchange of India Ltd. (NSEIL), Multi Stock Exchange of India Ltd (MCX-
SX) and also depository participant with National Securities Depository Ltd (NSDL) and Central Depository Services Ltd. ARSSBL is engaged in the business of
Stock Broking, Depository Participant and Mutual Fund distributor.
The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi research have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
General Disclaimer: This Research Report (hereinafter called “Report”) is meant solely for use by the recipient and is not for circulation. This Report does not
constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The
recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of
purchase or sale of any security, derivatives or any other security through ARSSBL nor any solicitation or offering of any investment /trading opportunity on behalf
of the issuer(s) of the respective security (ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for
the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own
investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or
making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by
ARSSBL to be reliable. ARSSBL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy,
completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are
fair and reasonable, none of the directors, employees, affiliates or representatives of ARSSBL shall be liable for any direct, indirect, special, incidental,
consequential, punitive or exemplary damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report.
The price and value of the investments referred to in this Report and the income from them may go down as well as up, and investors may realize losses on any
investments. Past performance is not a guide for future performance. ARSSBL does not provide tax advice to its clients, and all investors are strongly advised to
consult with their tax advisers regarding taxation aspects of any potential investment.
Opinions expressed are our current opinions as of the date appearing on this Research only. We do not undertake to advise you as to any change of our views
expressed in this Report. Research Report may differ between ARSSBL’s RAs and/ or ARSSBL’s associate companies on account of differences in research
methodology, personal judgment and difference in time horizons for which recommendations are made. User should keep this risk in mind and not hold ARSSBL,
its employees and associates responsible for any losses, damages of any type whatsoever.
ARSSBL and its associates or employees may; (a) from time to time, have long or short positions in, and buy or sell the investments in/ security of company (ies) mentioned
herein or (b) be engaged in any other transaction involving such investments/ securities of company (ies) discussed herein or act as advisor or lender / borrower to such
company (ies) these and other activities of ARSSBL and its associates or employees may not be construed as potential conflict of interest with respect to any
recommendation and related information and opinions. Without limiting any of the foregoing, in no event shall ARSSBL and its associates or employees or any third party
involved in, or related to computing or compiling the information have any liability for any damages of any kind.
Details of Associates of ARSSBL and Brief History of Disciplinary action by regulatory authorities & its associates are available on our website i.e. www.rathionline.com
Disclaimers in respect of jurisdiction: This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in
any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject ARSSBL to
any registration or licensing requirement within such jurisdiction(s). No action has been or will be taken by ARSSBL in any jurisdiction (other than India), where any action for
such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in
compliance with all applicable laws and regulations of such country or jurisdiction. ARSSBL requires such recipient to inform himself about and to observe any restrictions at
his own expense, without any liability to ARSSBL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India.
Statements on ownership and material conflicts of interest, compensation - ARSSBL and Associates
Answers to the Best of the knowledge and belief of ARSSBL/ its Associates/ Research Analyst who is preparing this report
Research analyst or research entity or his associate or his relative has any financial interest in the subject company and the nature of such financial interest. No
ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at the end No
of the month immediately preceding the date of publication of the research report?
ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company No
ARSSBL/its Associates/ Research Analyst/ his Relative have any other material conflict of interest at the time of publication of the research report? No
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation from the subject company in the past twelve months No
ARSSBL/its Associates/ Research Analyst/ his Relative have managed or co-managed public offering of securities for the subject company in the past twelve No
months
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for investment banking or merchant banking or brokerage services No
from the subject company in the past twelve months
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for products or services other than investment banking or merchant No
banking or brokerage services from the subject company in the past twelve months
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation or other benefits from the subject company or third party in connection No
with the research report
ARSSBL/its Associates/ Research Analyst/ his Relative have served as an officer, director or employee of the subject company. No

Other Disclosures pertaining to distribution of research in the United States of America

This research report is a product of ARSSBL, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the
research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not
subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S.
rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
This report is intended for distribution by ARSSBL only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the
Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major
Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or
transmitted onward to any U.S. person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with
Major Institutional Investors, ARSSBL has entered into an agreement with a U.S. registered broker-dealer, Cabrera Capital Markets. ("Cabrera"). Transactions in securities
discussed in this research report should be effected through Cabrera or another U.S. registered broker dealer.
1. ARSSBL or its Affiliates may or may not have been beneficial owners of the securities mentioned in this report.
2. ARSSBL or its affiliates may have or not managed or co-managed a public offering of the securities mentioned in the report in the past 12 months.
3. ARSSBL or its affiliates may have or not received compensation for investment banking services from the issuer of these securities in the past 12 months and do not
expect to receive compensation for investment banking services from the issuer of these securities within the next three months.
4. However, one or more of ARSSBL or its Affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those
securities or options thereon, either on their own account or on behalf of their clients.
5. As of the publication of this report, ARSSBL does not make a market in the subject securities.
6. ARSSBL or its Affiliates may or may not, to the extent permitted by law, act upon or use the above material or the conclusions stated above, or the research or analysis
on which they are based before the material is published to recipients and from time to time, provide investment banking, investment management or other services for or
solicit to seek to obtain investment banking, or other securities business from, any entity referred to in this report.
© 2019. This report is strictly confidential and is being furnished to you solely for your information. All material presented in this report, unless specifically indicated
otherwise, is under copyright to ARSSBL. None of the material, its content, or any copy of such material or content, may be altered in any way, transmitted, copied or
reproduced (in whole or in part) or redistributed in any form to any other party, without the prior express written permission of ARSSBL. All trademarks, service marks and
logos used in this report are trademarks or service marks or registered trademarks or service marks of ARSSBL or its affiliates, unless specifically mentioned otherwise.
Additional information on recommended securities/instruments is available on request.
ARSSBL registered address: Express Zone, A Wing, 9th Floor, Western Express Highway, Diagonally Opposite Oberoi Mall, Malad (E), Mumbai – 400097.
Tel No: +91 22 6281 7000 | Fax No: +91 22 4001 3770 | CIN: U67120MH1991PLC064106.