Festivals set to drive credit card spending
Summary
The growth was mainly aided by better consumption in the tier 2 and tier 3 cities.Most companies have been able to maintain their market share, but some have seen an increase.
Credit card spending has been robust. The Reserve Bank of India’s (RBI) provisional data shows that the spends touched ₹1.45 trillion in July, reporting a 25% and 5.5% year-on-year and month-on-month growth, respectively.
This was mainly aided by better consumption driven by growth in the tier 2 and tier 3 cities. This is encouraging for pure-play credit card company SBI Cards and Payment Services Ltd. Also, with the branch expansion undertaken by some banks, the consumption improvement bodes well for the credit card business, too. Among large players, ICICI Bank Ltd’s month-on-month spends growth was strongest at about 12%, followed by Kotak Mahindra Bank Ltd at 10.5%. Here, SBI Cards has lagged with its sequential spends growth at 3.9%, though year-on-year growth was strong at 34%.
“The increase in credit card spending is mainly on account of improvement in discretionary spends and to an extent, revival in corporate spends. Also, the co-branded partnerships by the banks, where they partner with well-known brands like Amazon and provide offers, have helped in the recent months," said Shweta Daptardar, VP, institutional equity research, Elara Securities (India).
Here, most have been able to maintain their market share, but some have seen an increase. For instance, ICICI Bank’s market share inched up to 18% in July from 17% in June. SBI Cards’ market share has been steady at about 18%. As such, attractive offers and deals on credit cards are likely to increase with the upcoming festival season, point out analysts. Thus, the outlook on spends in H2FY24 is favourable, which may bring market share gains for some. Meanwhile, the industry’s credit card issuance also picked up month-on-month in July.
In general, a healthy environment in the industry bodes well for SBI Cards. SBI Cards’ monthly cards and spends data trends have been volatile, but year-to-date FY24 spends and card market share trends have stayed healthy, note analysts from Jefferies India. The path ahead is not smooth for SBI Cards, shares of which are down almost 4% since it announced its June quarter results (Q1FY24) last month. Q1 results were subdued and there are headwinds. For one, the increase in credit costs is a concern. In Q1, SBI Cards’ credit cost rose to 6.8% versus 6.3% in the March quarter leading to asset quality deterioration. The gross non-performing assets (NPA) rose sequentially to 2.41% from 2.35%, and the net NPA was up two basis points to 0.89%. The management has initiated multiple steps to control its credit costs and progress here is monitorable.
Further, SBI Cards’ high margin revolver credit business had been under pressure in the past. While this has stabilised in the past four quarters, any decline here would be a worry. SBI Cards’ EMI mix in the overall receivables has been slowly increasing. “We feel the credit card industry is shifting towards EMI-based loans and is generating income via payments to offset the reducing share of revolvers, which will lead to sustainable income and structurally lower credit cost," said an Incred Research Services report. But there is a risk in terms of rising competition, not only from banks but also from new non-banking financial institutions that are expecting to launch credit cards. Hence, investors will closely track how SBI Cards’ market share trends pan out. “New entrants in the credit card business are likely to take a while to establish their presence. Also, even this provides cross-selling opportunities for companies like SBI Cards as the target market broadens. But for the stock rerating to happen from hereon, credit costs control is key," added Daptardar.
