SBI Card sees spike in default, 9% avail recast, spends dip 10%

(This story originally appeared in on Oct 23, 2020)

Mumbai: In an indication of financial stress among individual borrowers, SBI Cards and Payment Services — State Bank of India’s credit card arm — said its gross non-performing assets (NPAs) rose to 4.3% as on September 30 compared to 2.3% a year ago. The company added that this figure would have been 7.5% had there not been a Supreme Court order that restrained declaring some Covid-related defaults as bad loans.

While SBI Card’s stress is manageable, it is indicative of the distress in the self-employed segment of retail borrowers, where most defaults are seen. Around 84% of SBI Card’s customers are salaried, of which 38% work in the public sector and 24% in large corporates. Yet, 9% of its receivables of Rs 24,000 crore are under the RBI’s resolution plan, indicating that these borrowers are facing financial stress.

The company’s shares fell about 5% after the Q2 results, which showed that its credit costs (amount set aside for defaults) rose to 14.2% from 5.6% in the previous year. The company’s scrip had been in the green on the back of festival sales.

SBI Card posted a net profit of Rs 206 crore for the July-September quarter, down 46% from Rs 381 crore in the year-ago period, after it set aside Rs 862 crore for bad debts as against Rs 485 crore in the first quarter and Rs 385 crore a year earlier. This included an additional provision of Rs 268 crore over and above statutory requirement. The company has made additional provisions of Rs 758 crore since the pandemic. Card spends were expectedly down 10% at Rs 29,590 crore because of the lockdown, closure of malls and air-travel curbs.

One reason for the NPA spike in this quarter is that default numbers for the first quarter were suppressed due to the standstill on repayments allowed by the RBI. In the second quarter, defaults rose as the moratorium ended and customers began experiencing stress on repayments. The bad loan numbers could go higher as currently there is a Supreme Court order stating that any account, which was not classified as NPA as of August 31, cannot be declared as an NPA until the next hearing or judgment as the case may be.

The increase in the credit costs is on account of loans that have already turned bad as well as because of the additional provisions the company has made for anticipated defaults.

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