India’s economy is locked out of its growth path as its residents, cooped indoors, are unable to spend and prop it up. Consumption has been hit severely, and it is hurting SBI Cards and Payment Services Ltd, the country’s second-largest credit card company.
SBI Cards is finding it a challenge to garner new spenders, while the existing ones are unable to swipe their cards enough to fuel the company’s revenue growth. The stand-alone cards issuer said it added 851,000 new accounts in the March quarter, a 10.9% decline from the previous year.
“The lockdown has severely impacted sourcing and sales since malls, transport hubs and other commercial areas are shut," said Hardayal Prasad, managing director and chief executive of SBI Cards, in an interview.
On an average, sales agents used to bring in nearly half of SBI Cards’ new business by hawking credit cards at shopping malls, airports and other commercial areas. This opportunity has now vanished.
Analysts expect the company’s earnings to be impacted in this fiscal. “Card growth, spends and fees will be under pressure which coupled with higher loan loss provisioning should depress earnings," said Anand Dama, analyst at Emkay Global Financial Services Ltd.
Investors who bought a slice of SBI Cards through its initial public offering (IPO) last year have found their returns erode in tandem with the fall in the company’s short-term growth prospects. The share price is down 26% from the issue price. To be sure, SBI Cards is not the only one seeing growth fall. HDFC Bank, the biggest credit card issuer, reported a drop in credit card outstanding for the March quarter. This shows card repayments exceeded card spends, which is unusual given the number of users who get by paying only the minimum balance due and not the entire outstanding amount.
Analysts at Bank of America expect a 4% industrywide fall in card spends for FY21. But unlike the case of banks where credit card risk is just one small slice of a huge portfolio, SBI Cards is a stand-alone non-bank finance firm in the payments business that does not have another stream of income.
Besides slower on-boarding of new customers, average spend per card has also dropped. They were down 11% in the March quarter due to the lockdown imposed since 25 March to curb the spread of covid-19, the company’s results showed. Quarantined Indians are unable to spend as the lockdown (now 55 days long) has stopped access to everything except essentials. Note that travel, entertainment and leisure, which are the biggest spends, have virtually disappeared. Even e-commerce transactions are a fraction of what they were before the pandemic.
While the lockdown has meant a big loss of growth for SBI Cards, the challenge for them has been to figure out how behaviours may change post the pandemic. Will Indians adopt a certain austerity out of fear? Will the way Indians travel, entertain and mingle socially change? Prasad at SBI Cards is also grappling with these questions. Although the company has worked out best and worst-case scenarios internally, it declined to provide any guidance.
“I have no idea how intense the virus outbreak would be or how long the lockdown would be. We won’t be able to give any forward looking statements," Prasad said in an analyst call on Friday.
He believes spending patterns are poised to change. While big ticket spends such as travel and leisure may take a long time to reach levels seen before the pandemic, more Indians can be persuaded to use plastic to pay utility bills, at department stores and even healthcare.
SBI Cards’s army of tele-callers is doing exactly this, besides helping in collection. “Utility bills or department store swipes are going to give us more business. These are also more sticky than discretionary spending," said Prasad.
But this is a hard volume game to play. Competition gets intense during crisis and Indians are now spoilt for choice in digital payments.
Meanwhile, SBI Cards has set aside ₹489 crore as provisions towards risks emerging from covid-19. This dragged the company’s net profit down 66% for the March quarter.
A silver lining is that just 10% of total active accounts had opted for the moratorium in March. The Reserve Bank of India had allowed banks and other finance firms to give a three-month repayment holiday to borrowers due to covid-19. A quarter of those that opted for moratorium have begun to repay their outstandings in April, Prasad said. This should give comfort to investors on the delinquencies side.
SBI Cards needs big spends by its customers to stage a rebound for its investors. Needless to say, the Indian economy too needs the comeback of consumption.
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May 11, 2020 at 02:11AM
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