Rally in SBI Card may have priced in improved outlook
Despite gains from RBI rate cuts, high credit costs and sluggish card spends raise questions on how much further the stock can go.
Shares of SBI Cards and Payment Services Ltd (SBI Card) hit a new 52-week high of ₹1,027.25 on Tuesday, having rallied nearly 50% so far in the calendar year (CY) 2025. The Street appears upbeat about the company’s business prospects, especially after the Reserve Bank of India (RBI) began its rate-cutting cycle.
As the only listed pure-play credit card issuer, SBI Card is seen as one of the biggest beneficiaries of lower interest rates. Unlike most non-banking financial companies (NBFCs), which may be pressured to pass on lower borrowing costs to customers, SBI Card—having previously borne high borrowing costs—faces no such pressure with its credit card customers.
Interest rates on outstanding credit card balances are typically high and relatively inelastic to rate cycles, as they factor in a premium for elevated default risk. SBI Card’s loan book is on a fixed-rate structure, while its borrowings are of relatively shorter duration, the management had highlighted in Q4FY25 earnings call.
Read this | Mint Explainer: RBI cuts repo rate by 50 bps. How will it impact lenders and borrowers?
Its average cost of borrowings has steadily risen from 5% in FY22 to 7.7% in FY25, but average yield on loans has remained flat at around 17%. This had compressed its net interest spread rate from FY22-FY25.
Now, with the RBI having cut the repo rate by 100 basis points since February, SBI Card stands to benefit. Its average borrowings stood at around ₹41,500 crore, based on the average of FY24 and FY25. Assuming a conservative estimate of 75 bps as benefit from lower interest cost, the company could see a ₹300 crore boost to earnings before tax (EBT) annually. That is a significant amount, considering EBT for FY25 was ₹2,580 crore. However, the entire benefit may not materialize in FY26, given the usual lag in rate transmission.
Even so, RBI’s rate cuts solve only a part of the problem for SBI Card.
A bigger challenge for SBI Card is a high default rate. Despite falling spread, its pre-provisioning operating profit climbed at a healthy three-year CAGR of 19% to ₹7,450 crore in FY25. But higher defaults have resulted in comparatively faster three-year CAGR of 29% in credit cost (provision for bad debts and write offs) to ₹4,870 crore.
Read this | Credit card additions slow down in 2024, seen moderating as delinquencies rise
It is comforting that there are initial signs of respite from high delinquencies. Key indicators—expected credit loss (ECL) and credit cost—declined sequentially in Q4FY25 for the first time in at least four quarters. ECL, a credit risk accounting method used by NBFCs to estimate potential loan losses, declined from 3.6% to 3.4%. Credit cost also fell by 40 basis points to 9%, helped by tighter underwriting standards and stricter financial checks before issuing new cards.
Still, these gains do not justify the stock’s sharp rally. Despite a weak FY25—net profit declined 20% year-on-year—SBI Card shares have surged 40% over the past 12 months.
For this momentum to sustain, the company needs a meaningful revival in fee income. In FY25, although the outstanding number of cards grew 10.1% year-on-year to 20.8 million, spending on cards was up by mere 1% to ₹3.33 trillion. That is a concern. Spending is a critical metric for SBI Card as interchange fees (fees received from merchants) depend on the amount of money spent using credit cards. With barely any growth in spending, fee income was almost flat at ₹8,000 crore in FY25.
Also read | SBI Card: Puzzling investors’ fancy for cards biz
Plus, valuations are not cheap. Based on Bloomberg consensus estimate for FY26, the stock is already trading at a price-to-earnings multiple of 34x.
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