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SBI Cards (SBIC), yet again, reported a miss on earnings (of 10%), with PAT at Rs5.5bn/4.1% RoA due to continued deterioration in asset quality leading to higher LLP/charge-off. Though SBIC has taken incremental measures to cut portfolio risk, NPAs are on the rise, with GNPA ratio now at 2.6% from a low 2.2% a year ago. With the revolver portfolio being relatively lower at 23% from the 40% peak pre-Covid, we do not expect a full blown asset-quality fallout akin to that during Covid, but delinquencies would continue rising as stress in the multi-card & lower-bucket customer portfolio emerges. Mgmt has guided to NIMs too remaining under pressure for an extended period due to rising funding cost and, now, NPAs too. Company’s CET 1 has fallen sharply by 450bps QoQ to 16.3%, which would call for capital raise soon and, hence, further RoE dilution. Factoring-in the slower growth/higher LLP, we cut our earnings estimate by 19-30% and revise our ERE model-based TP to Rs725/sh (from Rs865), implying 4.5x Dec-25 ABV/24x EPS; downgrade to REDUCE from Buy.

Margins could be under pressure for an extended period

New card addition count has moderated to 1.1mn in 3Q vs 1.6mn last year, partly due to devaluation of the cash-back card and Company’s cautious approach amid rising delinquencies. Further, the card drop rate too has accelerated, to 51% of new card adds vs the mid-40s range earlier – a phenomenon seen across the industry due to clean-up of inactive cards post change in rules by the RBI as well as some lower-ticket card deactivation. CIF growth has moderated to 16% YoY to 18.5mn, leading to continued decline in market share to 18.9% from 19.3% a year ago. However, cumulative spends growth remains high at 31% YoY, partly aided by festive spends, with some improvement in market share to 18.3% for 3Q. This is reflecting in the higher AUM growth, at 27% YoY/8% QoQ. However, NIM was largely stable at 13.4% due to sharp rise in CoF, while Bank guides for softer margins in the near-term as the rate reversal cycle is delayed.

Asset quality aggravates for the industry, as also for

SBIC SBIC’s GNPA ratio has deteriorated from a low of 2.2% a year ago to 2.6% now, leading to higher charge-off and pressure on earnings. Management had earlier indicated a oneoff stress in the old 2019 pool some time ago, and it now believes the stress is likely be more widespread and swiftly intensify due to higher customer leverage. With the revolver portfolio being relatively lower at 23% from the peak of 40%, we do not expect a full blown asset-quality fallout similar to that during Covid, but delinquencies would continue to rise as stress in the multi-card and lower-bucket customer portfolio comes to the fore. Thus, we build-in higher LLP/charge-off for SBIC.

We downgrade to REDUCE, as asset-quality stress intensifies

Company’s CET 1 has sharply fallen by 450bps QoQ to 16.3%, which would call for a capital raise soon and hence lead to further RoE dilution. Factoring-in the slower growth/higher LLP, we cut our earnings estimates 19-30% and revise our ERE model based TP to Rs725/share (from Rs865), implying 4.5x its Dec-25 ABV/24x EPS. We downgrade our rating to REDUCE from Buy. Key upside risks to our TP: Lower than anticipated asset-quality deterioration

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