Second largest credit card issuer in India with extensive industry expertise and
a demonstrated track record of growth and profitability
According to RBI, SBI Cards is the second-largest credit card issuer in India both in terms of numbers of credit cards issued and amount of credit card spends, with 9.46 million credit cards issued as on September 30, 2019 and Rs.1,032.65 billion in total credit card spends in fiscal 2019. SBI Cards operate a nationwide business with a substantial cardholder base spanning across India’s 8 largest metropolitan areas, India’s tier II and tier III cities as well as its rural areas.
SBI Cards is the largest pure-play credit card issuer in India, according to a CRISIL Report, and has more than 2 decades of operating experience in India’s credit card market.
Supported by a strong brand and reputed promoter
Brand, reputation and cardholder satisfaction are critical factors in developing business and improving market position. All of SBI Cards credit cards carry the SBI Card brand, which is a highly trusted and recognizable brand in India.
The value of the SBI Card brand is further strengthened by its superior customer service, which includes ‘AskILA’ chat bot and social media customer service capabilities as well as artificial intelligence-enabled knowledge management tools that assist the company’s customer service representatives in providing faster and more accurate resolution in real time. The company’s promoter, SBI, is India’s largest commercial bank in terms of deposits, advances and number of branches as of September 30, 2019, according to the RBI. SBI Cards relationship with SBI provides it with access to SBI’s extensive branch network of 22,007 branches across India and enables the company to market its credit cards to SBI’s largely untapped customer base comprising 436.4 million customers as of March 31, 2019. SBI has also instilled in the company sound corporate governance practices that have helped to consolidate the credibility of its business.
Diversified portfolio of credit card offerings
SBI Cards has a comprehensive and diverse portfolio of credit card products that is continuously adapted to the evolving needs of its cardholders and changing industry dynamics. SBI Cards credit card portfolio caters to individual cardholders and corporate clients, and includes lifestyle, rewards, travel and fuel, shopping, banking partnership cards and corporate credit cards. It offers four primary SBI branded credit cards: SimplySave, SimplyClick, Prime and Elite, each catering to a varying set of cardholders needs. In addition, the company also the largest co-branded credit card issuer in India as per CRISIL Report, and offers a wide portfolio of co-branded credit cards in partnership with several major players in the travel, fuel, fashion, healthcare and mobility industries, including Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, the IRCTC, OLA Money and Yatra, among others.
SBI Cards credit cards portfolio is tailored to meet the specific needs of its cardholders across all major cardholder segments, from the “premium” cardholder category to the “affluent”, “mass affluent”, “mass” and “new to credit” categories. By catering to specialized cardholder needs, SBI Cards is able to offer customized benefits, such as reward programs and discount programs, that are tailored for each target demographic and thus offer them a higher value proposition.
Advanced risk management and data analytics capabilities
SBI Cards advanced risk management infrastructure is robust and data-intensive, both in terms of frequency and volume of review and is guided by data analytics capabilities. It evaluates a large number of data points to generate credit decisions. SBI Cards possesses a large database of cardholder demographic and socio-economic data (such as its cardholders’ purchase patterns, behaviors and payment histories) derived from the numerous transactions carried out by millions of cardholders each year. This information covers existing and historical cardholder accounts across all portfolios and is a significant business asset for the company, enabling in-depth analysis of cardholder propensities and modeling of future performance. It analysez this data together with data obtained from credit bureaus and other sources to, among other things, generate underwriting scorecards tailored to cardholder demographics proactively mitigate risks, and reduce losses and delinquencies.
Modern and scalable technology infrastructure
SBI Cards has a scalable, modern and sophisticated technology infrastructure capable of servicing the entire credit card life cycle. Core technology systems can handle a much higher number of accounts and transaction volumes than they currently handle, which gives the company the operating leverage to support the expansion of its cardholder base. The company has successfully tested its key technology systems ability to support between three to five times the current level of business volumes, which provide it with a solid foundation for future growth. SBI Cards technology systems also leverage artificial intelligence and process automation technologies across several of its platforms to automate routine activities, such as fraud disputes, collections functions, auto debit reconciliations and customer service, among others, which has increased its operating efficiencies.
Credit card industry spends to grow 2.5 times in the next five years
Credit card spends have registered a robust growth, growing at a CAGR of 32.0% from fiscal 2015 to fiscal 2019 to reach Rs. 6.0 trillion as of fiscal 2019 and is expected to grow at a healthy rate to reach Rs. 15.0 trillion as of fiscal 2024, which is 2.5 times over fiscal 2019, according to CRISIL Research.
Credit card spending relative to private final consumption expenditure (PFCE) has significantly increased in recent years. In absolute terms, per-capita PFCE was approximately Rs. 85,000 in fiscal 2019, of which only Rs. 4,500 comprises spending through credit cards. Credit card spending accounted for approximately 5.4% of PFCE in fiscal 2019, compared to approximately 2.3% in fiscal 2014. Going forward, according to CRISIL Research, credit cards spends are expected to grow at a much faster pace than PFCE, and per capital credit card spend as a percentage of per capita PFCE is expected to reach 7.6% by fiscal 2024.
Headroom for growth in an under-penetrated credit card market
Credit card penetration in India (i.e. average number of cards per 100 people) is relatively low in comparison with other countries. According to the CRISIL Report, in calendar year 2017, the average number of credit cards outstanding per 100 persons in India was 2.2 as compared to 320 in the United States, 42 in China and 73 in Brazil.
Demonetization was one of the significant factors that led to faster growth in credit cards. Further, the government’s emerging version of a cash-less society, focus on digitalization, developments in e-commerce, and the availability of POS infrastructure have significantly encouraged payments through credit cards.
Credit cards remain an important aspect of continued economic growth. Credit cards and other electronic modes of payment, such as e-wallets and UPI, make payment functioning easier and play an important role in the cycle of increased consumption and production by offering merchants a guaranteed method of payment and providing convenience to consumers. Apart from offering cashbacks, reward points or discounts to customers on credit card spends, players are now also increasingly partnering with other players and offering co-branded credit cards to attract more customers.
According to CRISIL Research estimates, as of fiscal 2019, credit cards account for 30% to 35% of overall ecommerce payment value. This has increased over the years as e-commerce players look at ways to reduce cash on-delivery proportions, which account for around 50% to 60% in terms of volume, by introducing card-on delivery option for its customers. This forms a small proportion of overall card payments but with card-on-delivery options, customers can conveniently swipe their credit or debit cards when a product is delivered and avoid cash payments. Unlike UPI, e-wallets or other digital modes of transactions which offer convenience and rewards, credit cards also offer interest-free credit to its cardholders and is accepted globally. Although e-wallets and debit card issuers have started providing equated monthly installment (“EMI”) facilities to customers, these are without any credit free-period. All these additional factors, along with rapid innovations towards providing convenience to customers are expected to drive credit card growth. Credit cards are also used for higher value transactions compared to other payment modes and has an average transaction amount of approximately Rs. 3,400.
Competition in the credit card market from other credit card issuers and payment
The credit cards business is highly competitive. This increasingly competitive environment is primarily a result of changes in technology, product delivery systems and regulation, as well as the emergence of new or significantly larger credit card issuers or payment solutions providers, all of which may affect SBI Cards cardholder’s expectations and demands. SBI Cards competes with other credit card issuers and payment solutions providers such as banks, payment banks, NBFCs and financial technology enterprises based on a number of factors, including brand, reputation, customer service, product offerings, incentives, pricing, technology and other terms. Mobile, e-wallet and tokenization platforms, including the increasingly prevalent unified payments interface platform, present formidable competition as they are able to attract large payment volumes at low or no payment processing fees to merchants.
Loss or reduction in the level of support received from Promoter
SBI Cards credit cards portfolio consists primarily of SBI-branded credit cards, and the company takes advantage of its promoter’s large branch and customer networks in order to market its credit cards. Its promoter is its largest customer referral partner, and its referral arrangements with SBI allow the company to market our products and services to SBI’s customers by utilizing promoter’s vast branch network. For example, SBI provides space for the company’s outsourced sales workforce to be present at select SBI branches, and SBI Cards also carries out joint marketing efforts with our Promoter. In fiscals 2019, 2018, and 2017, new accounts acquired from SBI’s customer base accounted for 55.2%, 45.5% and 35.2%, respectively, of the company’s total new accounts. SBI has also granted SBI Cards a non-exclusive license to use the “SBI” brand and trademark. If the company’s rights to the “SBI” brand and trademark are discontinued for any reason, its reputation, business, financial condition, results of operations and prospects could be adversely affected.
Credit card portfolio is unsupported by any collateral that could help ensure
repayment, and in the event of non-payment by a cardholder of their credit card
receivables, SBI Cards may be unable to collect the unpaid balance.
SBI Cards extends revolving unsecured credit to its cardholders as part of its business operations. As of March 31, 2017, 2018 and 2019, and September 30, 2019, 97.3%, 98.2%, 98.7% and 98.5%, respectively, of its credit card portfolio was unsecured. Unsecured credit card receivables present a greater credit risk than a portfolio of secured loans because they are not supported by realizable collateral that could help ensure an adequate source of repayment for the credit card receivables. Although the company may obtain direct debit instructions from its cardholders for such unsecured credit card receivables, we may still be unable to collect in part or at all in the event of non-payment by a cardholder. Further, any expansion in its unsecured credit card receivables portfolio could require it to increase its provision for credit losses, which would decrease its profitability.
SBI Cards is the second-largest credit card issuer in India, with a 17.6% and 18.0% market share of the Indian credit card market in terms of the number of credit cards outstanding as of March 31, 2019 and September 30, 2019, respectively, and a 17.1% and 17.9% market share of the Indian credit card market in terms of total credit card spends in fiscal 2019 and in the six months ended September 30, 2019, respectively, according to the RBI. SBI Cards offers an extensive credit card portfolio to individual cardholders and corporate clients which includes lifestyle, rewards, travel and fuel, shopping, banking partnership cards and corporate cards covering all major cardholder segments in terms of income profiles and lifestyles.
SBI Cards started operations in 1998 as a joint venture between SBI and GE Capital. SBI’s parentage and trusted brand have since then provided SBI Cards with an image of trust and transparency that allowed SBI Cards to gain consumers’ confidence.
GE Capital’s ownership stake in SBI Cards was acquired by SBI and CA Rover Holdings in 2017. Effective from April 1, 2018, SBI Business Process and Management Services Pvt Ltd. (SBIBPMSL), an entity that provided back-end payment and processing services to SBI Cards, was merged with and amalgamated into SBI Cards. The promoter of the company is State Bank of India (“SBI”) who holds 74% of the issued, subscribed and paid up share capital of the company.
|% of sales||2.80%||3.70%||5.60%|
|Operating & Establishment Expenses||256.51||364.46||581.77|
|Administrations & Other Expenses||840.72||1669.90||2379.23|
|Operating Profit (Excl OI)||1578.60||2121.45||2451.60|
|Profit Before Taxation||571.62||919.35||1331.60|
|Provision for Tax||198.76||318.20||468.88|
|Profit After Tax||372.86||601.14||862.72|
|Earnings Per Share||4.75||7.66||10.30|
Low penetration of SBI customers, strong own distribution network, increasing tie-ups and low penetration of credit cards will help SBI Cards continue its growth momentum. High growth, high ROA and ROE justify premium valuation. We are optimistic on SBI Cards and recommend ‘Subscribe’ for the issue.
Use of Proceeds:
The net proceeds of the Fresh Issue, i.e. Gross proceeds of the Fresh Issue less the Offer Expenses apportioned to the company are proposed to be utilized for augmenting capital base to meet future capital requirements. Fresh issue consist of Rs. 500 cr. balance is offer for sale.
Book running lead managers:
Kotak Mahindra Capital, Axis Capital, DSP Merrill Lynch, HSBC Securities and Capital Markets, Nomura Financial Advisory and Securities, SBI Capital Markets
Mr. Hardayal Prasad (Managing Director and Chief Executive Officer) and Mr. Richhpal Singh (Chief Operating Officer).