SBI Cards Stock Analysis | Latest Update

SBI Cards Latest Business Update on COVID-19

Introduction

SBI Cards business is seen recovering in the month of May 2020, mainly driven by pent-up demand post relaxation of lockdown. Lets see the latest business updates of SBI Cards for April and May 2020.

SBI Cards Business Recovering (May-2020 Update)

Impact of COVID-19 on Business of SBI Cards

• SBI Card said it has been focusing on business continuity since the first lockdown (late March) was announced. It has been continuously scaling up business operations since then.
• The company has undertaken a detailed scenario analysis of the unprecedented economic situation caused by the COVID-19 crisis and has developed strategies to manage its business impact.
• This includes entire spectrum of its business model encompassing customer acquisition, generating spends, portfolio monitoring and collections, customer servicing, cost optimization etc.

SBI Cards Latest Business Update on COVID-19

1. New Account per Day

• SBI Cards issued 8.5 Lakh new cards in Q4 FY20 at a daily rate of 10,000 cards per day till mid March 2020 (from Jan’20 to mid-Mar’20).
• In the second half of March 2020, the rate of new cards per day declined by almost 60% to 4,000 cards per day from 10,000 cards per day due to Nationwide lockdown.
• In April 2020, around 27,000 new cards were issued primarily from the applications already in the pipeline at a daily run rate of less than around 1,000 cards per day.
• While, in May 2020 with zone-based relaxations, sourcing of new accounts has gradually increased and new cards run rate has reached to 2,500+ cards per day.
• Thus, a recovery in New cards issued per Day is seen in May month, which is a positive sign for the company.

2. Average Spends per Day

• On the spending side, credit card as a product has an advantage of continuous customer engagement due to the unique nature of business.
• As a result, spends on credit cards continued during lockdown through online and merchant outlets open during this period.
• In Q4 FY20, between Jan-20 to mid-March-20, the average daily spends was Rs.376 Cr per day. While in the second half of March-20, during lockdown, the average daily spends has declined by almost 47% to Rs.256 Cr per day.
• Post relaxation of lockdown average spends per day in the month of May 2020 is trending at Rs.175 Cr per day vs Rs. 290 Cr per day for April 2020.
• The daily spend level in last 7 days of May 2020 was trending at Rs.200 Cr per day. SBI cards is now averaging at 60%+ of the pre lockdown daily average spend.
• Online spends for Q4 FY 20 were 44% of the total retail spends which is trending at 55% of total spends in May 2020.
• Top online categories are departmental stores & groceries (D&G), utilities & services and top point of sale categories are D&G, fuel, electronics and health and wellness.
• While certain categories of spends like travel, dining and lodging have remained weak. Whereas, the new categories like education, online health and pharmacies have come up.

3. Moratorium Repayment

• Around 8.4% of customers opted for the Moratorium in March-20. It covers around 16% of the balance under moratorium.
• The number of customers under moratorium in April 2020 and in May 2020 (up to 22nd May) were 12.3% and 11.8% respectively.
• 24% of the customer base under Moratorium repaid back in part/ full as of April 30, 2020.

4. Risk Management against COVID

• The disruption of collection s process along with the moratorium availed to customers has impacted repayments.
• The company continues to closely monitor its portfolio and is taking appropriate actions to mitigate risk in specific customer segments.
  • The actions range from credit limit decrease, blocking of cards, restricting cash withdrawal etc.
• In FY20, the company created additional COVID-Related provisions of Rs.490 Cr to cover probable credit losses that may result in future resulting from COVID-19 economic deterioration and RBI moratorium.
• On 22nd May, RBI has extended the moratorium for additional three months till August 2020.

5. Liquidity & Capital Adequacy

• The liquidity position of the company is comfortable with diverse funding options available.
• Presently, the company has around 35% of total sanctioned banking lines as unutilized limit available for drawdown.
• The unutilized lines are sufficient for meeting the future short-term requirements. Capital Adequacy Ratio at Mar’20 stood at 22.4% and Tier 1 at 17.7%.
• With a strong parentage of – State Bank of India, Liquidity would never be an issue for SBI Cards.

6. Collections

• In the initial phase of lock-down, the field and tele-calling channels were impacted. Since then, the company has operationalized around 80% of its tele-calling infrastructure by enabling resources to operate remotely.
• While field collections continue to be impacted, the resources have been redeployed to tele-calling operations.
• Additionally, digital m odes are being used to build the communication intensity with the customers.
• The company is continuously monitoring State notifications on lock-down and with easing of restrictions, the field activities are gradually getting operationalized.

7. Operations

• More than 70% workforce is operational, since lockdown relaxation.
• Since partial relaxation of lockdown,
• 1.4 Lakh+ physical cards (including renewals and reissues) have been delivered
• 70,000+ customer verification has been completed.
• 1 Lakh+ new accounts h ave so far been booked during the lockdown period through remote operations.

COVID Impact on the Business in Near Future

• Due to the COVID crisis, the company foresees adverse impact on its revenues resulting from :
  • Lower spends and
  • Disruption in new account acquisitions
• This revenue loss may not be compensated through higher interest income following the payment moratorium offered to its customers.
• Also, the credit costs in the near term may be higher. Accordingly, the company has provided additional COVID-Related provision of Rs.490 Cr in FY20 based on our internal assessment to cover future losses.
• Mr.Hardayal Prasad, MD & CEO, SBI Cards updated that the company is closely assessing the external situation and its impact on portfolio. Thus, it may revise this credit provision if there is a significant change from its previous assessment.