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 India's second-largest credit card issuer SBI Cards and Payment Services on Friday reported a slide in first-quarter profit as elevated credit costs and margin compression offset growth in revenue.

Profit after tax for the June quarter fell 5.36% to 5.93 billion rupees ($72.16 million) year-on-year, below the estimated 5.98 billion rupees, according to Refinitiv IBES data.

Net interest margin (NIM), a key measure of profitability, fell 176 basis points to 11.5%, due to a drop in the mix of higher-yielding revolvers and 197 basis-point rise in cost of funds.

While analysts expect NIMs to bottom out in the first half of this fiscal year and see a recovery over the next two financial years, the moderation in industry growth and an uptick in costs are likely to keep the pressure on margins.

Credit card users are classified as transactors, who clear their dues before date, while revolvers are those who do not clear dues and pay interest. Revolvers are margin-accretive for credit card issuers like SBI Card.

Card-in-force, or the number of cards issued and outstanding, grew 21% to 17.3 million, while total spends on credit cards grew 24% to 739.13 billion rupees, the company said in a filing.

Total revenue from operations grew 26.18% to 39.12 billion rupees, but the revenue growth was offset by a 34.17% jump in total expenses to 32.50 billion rupees, including an 85.18% jump in finance costs.

Gross credit costs rose 60% to 7.18 billion rupees, weighing on profitability. Provisions rose 10% sequentially to 970 million rupees, predominantly due to higher spends and pre-COVID-related portfolios.

The company also witnessed a marginal worsening in asset quality, with gross bad loans rising to 2.41% from 2.35% in the March quarter of fiscal year 2023.

The stock rose 1.29% on Friday ahead of the results.