Q1 21/22

Jul 22, 2021

Ladies and gentlemen, good day, and welcome to the Q1 FY 'twenty two Earnings Conference Call of STI Cards and Payment Services Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask Questions after the presentation concludes. Tuncout? Please note that this conference is being recorded. I now hand the conference over to Mr. Ramamomand Rao Amara, Managing Director and Chief Executive Officer of SDI Cards. Thank you, and over to you, sir. Yes. Thank you, Ritujan, and good evening, everyone. On behalf of SBI Card, I extend a very warm welcome to you and Thank you for joining us today for the earnings call for the Q1 FY 2022. My heartfelt gratitude to all of you for continued support and confidence in SBI Card Over all these years, especially during the current pandemic, your trust encourages all of us at SDI Cards To explore new horizons, drive the business forward and achieve the vision of the organization. I wish safety and best of health for all of you. I would also like to express my gratitude to my colleagues who rose to the challenge and diligently followed their professional responsibilities. As you are aware, While FY 'twenty one saw different stages of COVID-nineteen, Q1 FY 'twenty two got impacted going to the 2nd wave. Among all these, Silver lining is an intensified vaccination drive now in India with over 40 crores of vaccinations completed, Well in line with the government's plan to vaccinate entire 18 plus population by the end of 2021. During COVID wave 2, There were state specific lockdowns. However, the impact of the claim was not as severe as was observed in the Q1 of last year. Also, another positive development is the revival witnessed in June 2021, which continues to be seen in 30 July 2021. As an agile and adaptive organization, we continue to closely monitor the situation. We are taking calibrated measures to build a robust, reliable and resilient business. Despite the challenging environment, SBI Card managed to grow its costs in force and reached a milestone of 12,000,000 cards. We continue to bolster our portfolio. And in a move to augment our premium portfolio, We announced launch of a new co brand relationship, Fab India USB Card, during the quarter. As a measure of abundant precaution, We are continuously calibrating our credit filters for new customer acquisition. We continued with efforts to offer customers With easy payment options over the period at lower interest levels, which have been received well. At the same time, we beefed up the collection efforts to minimize risk. Our employees are diligently pursuing various initiatives to fuel organizational growth. During the quarter, we took various measures and initiatives to ensure their safety and well-being. Taking this further, during the quarter, we also organized vaccination drives in different cities for our employees and their family members. It's heartening to share that as a responsible organization, SDI Card is strongly focused on driving a positive change in the communities by ensuring their welfare and Holistic Development. During the period, besides regular initiative, SBI Card also supported efforts to elevate the pain caused by COVID-nineteen. SDI Cards supported health infrastructure and capacity building at various government hospitals and medical colleges by providing PPE kits, COVID testing kits, ventilators, setting up oxygen generation plants, developing COVID care centers, etcetera. Other initiatives included providing dry rations to cook meals among others. At this point, it is important to emphasize that Back to our robust business model and learning from the toughest phase we witnessed last year, we surely are much better equipped and prepared now. I'm confident that we will effectively navigate the business in FY 2022 as well. Let me now take you through our financial performance for Q1 FY 2020. We had strong business performance in Q1 FY 2022 despite the quarter being impacted by a very strong COVID-nineteen second wave. Our resilient business model ensured that our key business volume indicators were significantly higher on year on year basis. This reflects on our capability in managing business during COVID 2.0. Our new accounts for the quarter are 609000, which is 111% higher than corresponding figure on year on year basis. And as mentioned earlier, our cards and quotes are now higher than 4,000,000. Our retail spends grew at 63% year on year to more than INR 27,000 crores. Corporate spends grew at 149% on year on year basis to more than INR 6,100 crores. Receivables grew at 5% on year on year to more than INR 24,400 crores. Our cards market share increased to 19.2% in May 2021 from 19.1% in March 2021. Our expense market share has increased from 18.2 percent in Q4 FY 2021 to 18.9% as of May 2021, as adjusted were disclosures by a major bank to stock exchanges. Profit after tax for the quarter is INR305 crores, which is 74% higher Versus previous quarter in Q4 FY 'twenty one, but 23% lower on year on year basis. Total income grew at 12% On year basis to INR 2,451 crores, operating expenses were lower by 9% versus Q4 FY 'twenty one. Now moving to asset quality. The credit risk situation continues to be impacted by resistance of 2nd wave and overall macroeconomic variables surrounding us. To cover ourselves for future credit risk, we provided will continue with the management overlay of INR258 crores as on June 21. Our GNPA has come down to 3.91% as compared to 4.99% as of the end of March 2021. Net NPA for the period is at 0.88% as compared to 1.15% as of March 21. As of June 21, close to 60% of the total RBE RE book is less than 30 days delinquent. For the RBRE book, which is between 30 days 90 days, the company continues to provide a Stage 3 ECL rate of 65.2 percent, which is equivalent to Provision date that is applicable for NPS. Further, for RBRE book which is greater than 90 days, the company has increased its e sale provision rate From 80% to now 100%. ARPU EDA that we return on average listed for the quarter ended June 21 is at 4.5%, which is higher by 196 basis points as compared to 2.6% for March 21. And ROAE's return on average which is good at 18.8 percent, which is again higher by 7 61 basis points as compared to 11.2% for March 21. On liquidity and capital efficiency, our liquidity position continues to be strong during Q1 FY 2022. Our capital efficiency ratio for period ended June 2021 We said 26.1% as compared to 24.8% at March 21. Our Tier 1 ratio has moved from 22.6 I mean moved to 22.6% from 20.9% as of March 21. We continue to enjoy strong credit ratings. Our trade ratings remain excellent with A1 plus and AAA ratings by Crisele and Ekrans for both short term and long term borrowings. These strong ratings for the rating agencies reflect our robust business and financial fundamentals. So, Vijat, let's open the call for questions. Rupesh, you may please open the call for questions. Thank you very much. We will now begin the question and answer session. And 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to limit the questions to 2 per participant. If you have a follow-up question, please rejoin the queue and to use handsets while asking a question. The first question is from the line of Anup Singla from Bank of America. Sir, please go ahead. Yes, thank you very much. Good evening, sir. Sir, first question is with regards to your comment on credit filters. You mentioned that there are some changes you have done given the volatility in the market. Can you talk about that in a bit more quality? What kind of measures have been taken? And secondly, on the restructuring 2.0, what kind of response have we got to the in the month of May June? And what kind of escalation we can see in the RBI RE book, let's say, in the next quarter? Or is the worst done in terms of restructuring. Yes. Anuj, coming to the first question, credit filter, This is a kind of continuous activity. I mean as part of portfolio management, we always change the filters. Wherever we see a kind of stress that delinquency is higher than an acceptable level, we do make changes. Some broad level changes happened twice last year, 1 in May and 1 in November. That has ensured that the new acquisition is of acceptable quality. So apart from the big changes, I mean some kind of micro level changes will continue to happen, particularly I mean we do source Sizable segment from bank card, particularly NTC. So I think recently we have seen some small Increasing delinquency, we have tightened the filter, introduced some additional documentation requirements so as to ensure that we are getting the right customer segment. So that way the changes to credit filters is a continuous activity. Coming to your second question, RBRE2.0, Actually, you know like, RB issued the circulate in May and we got the policy approved through both in June. So our dispensation was available only in the 1st week of June. So we saw demand I mean, the initial days we saw a good demand of around INR258 crores is the portfolio, I mean, kind of RVRE 2.0 restructuring portfolio. We have Based on the request we received from the customers and after evaluating this profitability and eligibility, we restructured around INR258 crores, Which in a way if you compare our area portfolio was around 2,700 gross last year. So that way it is not even 10%. And what we have seen now in this July is like the risks have come down. It is not at the same level and We don't see a kind of situation of having the same portfolio like last year, definitely. But it's too early to comment. I mean, the flow has come down as compared to June. Understood. And one more if I may. The cost of 1% is 5.2% is, I mean, it's a very impressive number. How should we see this number turning out during the course of the next 3 quarters? I think to the take up my finance team, Nalin and his treasury team, they have managed this cost of funds very well. Whatever opportunities were there in terms of kind of shedding the high cost borrowings or high cost Facilities and then substituting with the low cost, they operate I mean, use it fully, all those opportunities are leveraged. But given the kind of current macroeconomic Situation where inflation is ruling high, I think perhaps the hope for further reduction in the cost of funds will be very limited. That is what our internal feeling is. While RBC is the kind of activity that is prevalent in the system, they continue to support. But if inflation continues to be high, Then I think there may be a juncture where policy rates may get revised. I mean, this is our opinion. Then correspondingly, the borrowing rates will also increase. But as long as the rates are I mean liquidity is good and as long as the current economic environment current rate environment prevail, We will continue to look for opportunities. And I think, Narin, in the Investor Day, we have given the borrowing percentage versus the overall, Long term versus the short term, just to give you some comfort that we have increased the percentage of long term borrowings from 28% to 34%. 34%. 34%. But while the cost of funds overall has come down, our long term borrowing has actually as a percentage, they increased from 28 to 34. So We are constantly looking for opportunities and that's the endeavor to keep the cost of funds low as well as possible. Understood. Thank you very much. I apologize. Thank you. The next question is from the line of Amit Nanavathi from Nomura. Please go ahead. Yes, hi. So just a couple of questions. Firstly, just want to understand the The linkage between your spend recovery and the revolver book, right? So even if I look at Last year, in the second half, we had roughly around 71% kind of increase In the overall book, but if I look at the revolver book per se, That was down and even if I kind of add back the RBI RE book and add back the write off there, it was still down like 3% odd In versus 2Q 'twenty one, yes, 4Q versus 2Q. So just want to understand once you've come out of wave True impact on spend recover, typically, just more theoretically, firstly, how long does it take To kind of come back in terms of optimum revolver mix. And secondly, more strategically also we would have chosen to keep the revolver book Lower by optimizing your customer needs. So in that sense, more like a practical level, How long does it take the revolver book to kind of improve and new margins to kind of recover? Yes. I will just add a couple of lines and Girish, how Girish will supplement. If you look at the Composition of transacted balances, revolver and EMI kind of balances, revolvers were pretty high at 45% as of June 2020, that was a result more of a moratorium and the heart I mean, heart shaped tools were not available at that time, only in August, only the The moment the tools were available from August onwards, part of those balances got converted into EMI. But then we have also given RBR Revark where we were seeing a steady rundown in the portfolio. Some of it, of course, the standstill portfolio got written off, but our VRE portfolio, we were able to see some robust payments till March 2021. So that brought down slowly the percentage up for EMI. I mean the RBI, I'm talking about RBI percentages. It has it was as high as 9% at one point of time, maybe in December 2020, Came down to 8% as of March 21 and now it has come down to 6% despite RBE2 portfolio, new portfolio of INR258 crores. So as this portfolio weighs down or otherwise as this portfolio pays off, to that extent you can see improvement in the revolvers. In fact, we're desperate converting INR258 crores of current balances into RBRE, which is almost like a 1%, Our revolvers improved in the quarter by 1%, 28% to 29%. So we always used to say like a BAU kind of scenario will be 1 third, 1 third, 1 third. Trans sectors reached that level, now it is 33%. But as RBRE portfolio comes down, We can see some kind of reversion to the mix in terms of revolver balances. So Just to add a couple of things there. From a quarter on quarter perspective, if you look at the movement, the asset Primarily on the revolver portfolio is almost stable. There is an increase in the term asset balances, So this is the EMI portfolio on the balance. There is also and this is despite the movement as Our MD sir mentioned that you have movement of earlier revolvers going into RVA, RE and the pay down. So Despite those movements, the balance revolver is almost stable. There is a decrease in the transactor any Because of the impact of COVID, which was not there in the end of March, but you could see that part of that in the month of June Because June was also not fully COVID free. So that impact is also there. There is a Decrease there. So that is why some mix thing you're still looking at this. The other question which you asked, what is the kind of time frame that we should look at From a conversion perspective, there are 2 kinds of conversion there. One is when we look at new spends, we try to convert a Good quality of that spends into immediately into an EMI kind of a growth portfolio, which is either through Subvention or Flexi Pay products that we have, we see a good conversion rate there. So that is one way of conversion. The second is The revolving conversion which happens the asset which builds up over a period of time, that takes normally anywhere between 12 to 18 months to get built up. Thank you. The next question is from the line of Subramaniamayas from Morgan Stanley. Please go ahead. Thanks for the opportunity. I had a question, Viktit. So, let's jump this quarter to 1Q and Suraj, if your voice is not audible, it's breaking. Is this better now? Yes, slightly. Okay. So, my question was with respect to the loan yield. So, there has been quite a good improvement in this Quarter and obviously a lot of it has got to do with the favorable shift this quarter. So just wanted your thoughts on basically how do you think about the mix going forward? And also the shift in mix This quarter towards the term loans was a bit unexpected because obviously in a quarter like this, we thought that term loans which is probably At the discretion, my question is, what are your thoughts on Also, were there any other factors which also resulted in the improvement in the loan yield this quarter? So we going forward, as was mentioned, we will look at a onethree, onethree, onethree mix Once RBI RE gets completely paid off from the portfolio, This was our broadly, this was a mix that with which we used to operate before the COVID period. And we had been operating with that mix For a fairly long time, so it was a consistent mix on a portfolio that we looked at that. We are seeing even now the movement is going towards that direction. So there are Apart from, I think, some bit of revolving mix to be changed, but if you look at revolving, RBI, which was Actually, a part of Revolver earlier that the mix would be approximately in the same onethree, onethree range. So we look at that. On the term loan perspective that you talked about, there is a market consumer demand towards Whenever consumer do large ticket items or mobile phones or some of these items are being purchased online, there is a very strong demand to convert into an EMI kind of a portfolio. And a subvention is working very nicely there. So we see Customers converting their balances into installment both at the point of sale as well as later on. So that demand is very, very strong. Also, we have in this quarter, we have very strongly looked at some of our good customers up And looked at giving additional loan to those customers so that Asset can be built there also, which is a product which we sell, which we call it NCash. So we have built assets there also. Okay. Thanks for that. Just a follow-up question on the reduction in the RBI RE book. If you can split that reduction of INR789 crores into basically write offs and actual repayments. Yes. This out of INR7.18 crores, I think bulk of it is RDA portfolio NPA, which was More than outstanding for more than 90 days, I think around INR 600 crores, INR 6.47 crores was outstanding as of March 2021. Normal situation, we would have recovered at least a result at least a part of it. But given the kind of situation second wave, I think most of it has actually was charged off. So that is mostly it is the RBRE and pay portfolio. And that is also one of the reasons why as a proactive measure, we increased the ECL provision for more than 90 days from 80% to 100% Based on the recent history. This is Subramaniam Iyer. We are sorry, but we cannot hear you, sir. Sorry. No, I said thanks a lot. I mean that answers all my questions. Thank you so much. The next question is from the line of Kartik Silapa from Buna Vista Fund Management. Please go ahead. Mr. Kartik Silipa, please go ahead with your question. We are not able to hear anything, Rituja. We can move to the next question in the queue. Yes, sir. Just give me a moment. Patricia, we can't hear you. Are you able to hear us? So please give me a moment, I'm facing some technical glitch. Patricia, can the group hear us or no one can hear us? Yes, sir. The group can hear you. I'm sorry, but the problem is from my side, there is a network base because of which the participants I'm unable to promote them in the queue. Okay. Please give me a moment. Please just allow me a few moments, sir. Please stay connected. It will be getting fixed shortly. Participants, please stay connected with us Due to some technical issues we are facing the facing problems. Please stay connected. Ladies and gentlemen, we apologize for the inconvenience caused. We will now begin the question and answer session. We'll take our next question from the line of Bhavik Dave from Nippon Indian Mutual Fund. Please go ahead. Yes. Hi. Good evening, sir. Sir, I have two questions. One is on your The incremental customer additions that we're doing, this quarter, we've had like significant additions via the non bank on the open market channel. And if you look at the various breakups, we've added more salarized, more category A type customers With already younger age of like 30 and above 30 and above sorry, 30 and below. And also, if you look at the geography mix, it's more Tier 1. So is there anything specific, any new channel that we found which is leading to getting back to Maybe a different type of customer segment during the quarter, if you could just talk about that? Yes. Mr. Bhavik, last year, entire last year, our banker channel contributed more than 50% To our incremental sourcing. But this quarter, it still happened like a lot of restrictions were there in so many states, Including sales putting restrictions on the operating overstock branches, which came in the way of source inclusive channel Because even the customers were hesitant and even the branch team was also function only for part of a day in some of the states, particularly in May at the end of April. That came in the way of sourcing by a banker channel. So that was the reason open market, of course, never I mean did not have the challenges to the same degree. So they continued with the acquisition and that was the reason like open market accounts for maybe more than 65% and 35% roughly from Banka. And Banker earlier because you know like we are working with the Shikhar model and Tier 3, Tier 4 we were targeting through the Shikhar model Where we had the benefit of that auto debit and auto fee. So, cities like Tier 3, Tier 4 had a significant contribution in the last year. But because the bank sourcing itself has come down, now it will appear like open market is always active in Tier 1 and Tier 2 only. So that contribution will appear like that has got increased. So It is not like a specific strategy. It is more around our inability to operate Bankera at the same level at which it was operating In the last year. And sir, if you could just talk about we've seen like last 7, 8 quarters, we had very good sourcing by the bank account. If you could just get qualitatively help us understand how is the customer behavior there being, how is the spend behavior being because those customers are also now Getting online on the various apps or various e commerce websites, how has the graduation of these customers Bien, over the last 7, 8 quarters, if you could just help us understand the balances or the spends have increased from these customers that we acquired via the Banka Tandy over the last 7, 8 quarters. So the way that we have been acquiring Banka customer as Was mentioned is through the Shikhar program. We run this Shikhar program in various batches. So we do it in program I think at this point in time, number 17 or 18, we take different kinds and sets of customers in each shipper program This is either the savings account or, let's say, a West side of Wealth customers. So we look at those each program like In that separate sense. What we have, however, seen across the portfolio is that people who become active And start using the card, their spend per card is broadly similar, slightly lower than the Normal open market customer in that city. So there is always a tiering because Tier 1 spends are higher. Customers in Tier 1 spends are higher. Tier 3 are slightly lower. The low and even when we look at the breakup, the online spends are broadly similar. It is the issue at the Point of sales because the number of point of sales terminals are not that much available in Tier 3. And the need is also usually not that much Because you know the local grocer or the shop owner and those kind of things. So you see but online spend is broadly similar. But where we were looking at seeing some challenges were in terms of getting the customer to start using the card and activating the card. So we've been doing a lot of programs. What we see is that it does take time for some of these customers to start using the card. But we have now figured out that As a customer comes on board, doing an onboarding session, talking to the customer, explaining the product does help. So we have put in those set of programs. The second thing which I want to highlight is that the asset built up in some of these customers in Tier 3 It's slower compared to a Tier 1, Tier 2 or already carded customer. So the balance For a mature customer, it does almost become similar, but the maturity time frame is slightly longer for these customers. Sure. And second question is on the EMI part. When we are seeing more and more customers, both at the POS terminal and also The balance is getting converted into EMI. If you could just talk about what are the rough EBIT that we charge like maybe at the cost terminal or Can you convert the revolver like the balances into UMIs? And how long does this book stick around? Like is the average duration 12 months P. Vijay Kumar:] Anything to read into that? So we do not convert revolving balance into installment lending Because that is not the right way. So the customers, if they are doing their fresh Our executive said that, we call to hold. Sorry, sir. It was Mr. Singh's line that went on hold. We placed him on mute right now. You may proceed. So If the customer is spending doing fresh spends on the card, then what we charge is 14%. And we also get the interchange on that transaction. So these are the Two income streams that we make on those transactions. On the Tenor part of it, the average tenor of people converting into installment lending at the point of sale is close to 8 months. So it's a very it's a short tenor thing. People prefer 6 months tenors or 12 months tenors primarily for conversion of new spends into installment balances. Mr. Davey, I'm sorry, may be requested to return to the queue, please, as there are several participants waiting for their turn. Yes. Thank you. Thank you. We will take our next question from the line of Jaimin Shah from RWC Partners. Please go ahead. Yes. Hi. Thanks for the opportunity and quite commendable performance given the circumstances. I had two questions. The first question is on spend. Could you talk a bit on spends on how it evolved from April, May June and what you are seeing in July? And could you talk about the frequency as in one of the slides you kind of show that spends on More of a daily necessity kind of stuff has gone up quarter on quarter. What has kind of suffered is The discretionary and more importantly, the services which are quite close. I'm just trying to understand how you see the usage. Also, the data we see from RBI is on per transaction basis, the average ticket size has gone up significantly quarter on quarter or even the data we have until Any color that would be great there. So when you read RBI data, you should look at it that, that Spence is both retail spends as well as corporate spends or B2B spends. It will include and the breakup is not given in the RBI data. So that way you will not be able to We had a mix on that. Typically, what happens is for the retail spends, the ticket sizes are lower. For B2B spends For SME spend, the ticket sizes are higher. So that's the insight while you are evaluating the RBI data. While on the first part of the question that you asked, you are right. Couple of trends that we see here is that Discretionary spends have gone down. They continue to be Down at this point of time because travel, lodging, hotels, restaurants are still not there. It is the non discretionary items are actually are growing. What is also what we see is that Online spend in Q1 in April, May, June actually on an absolute basis were also higher Then what we saw in Q4. So there is a trend line for as you can see on the slide which we had presented, 55 The spend is almost online. And so trend is basically that the customer is now buying non discretionary items And that is the kind and that is a consistent piece that we are able to see. Right. Okay. That's helpful. That's helpful. And just on the asset quality side, your GNP or whatever your Stage 3 include all the RBI RE more than 90 days, right? Yes. Asim, it's inclusive, right? Yes, yes. Okay. And I'm just trying to understand here the INR258 crores you kind of gave that number It's similar on management overlay and the RBI RE2.0. So essentially, is it fair to say that You're kind of covering 100 percent of RBI RE2? No. Javed, that's just a coincidence that the numbers And that being the same, that is not intended to cover the fresh RBI RE. Like we had mentioned earlier, the INR258 crores that you see as management overrate is just the fact that we cover for any delinquent RBI RE at 65.2 percent and any NPA RBI RE, we are right now covering it 100%. It's a sum total of both. The fact that it is exactly equivalent to that It's just a coincidence. Okay. Okay. No worries. No worries. No worries. Thanks, Adan. Thanks, Adan. Very helpful. Thank you. We'll take our next question from the line of Bharat Shah from ASK Investment Managers. Please go ahead. Two questions. First, you said that per se desired mix that you aim for is about 1.30 each, transsector, revolver and EMI. But Why would you desire 1 third to be revolver of necessity? I mean, does it have an impact on the way you assess the credit and the kind of You take a bit more literal stance and issue cards according to? If the idea is to on the interest income, Will it not structurally resulting to an issue at some stage? So when we said onethree, onethree, onethree, it's primarily what we have Seeing from the consumer behavior over a period of time, and we are talking about this after demonetization, Where we have seen that there are people, customers who are not and we are not talking about habitual revolvers or chronic These days, if you have to let's say, if you purchase a thing, as I was mentioning earlier, There are rates are available as low as 14% to 18% where the customer can convert into installment lending product. So customers who still evolve are either looking at it for a very short term Full fiscal working capital requirements. So what they're looking at is that if they're able they will be able to pay the outstanding within 2 months. So that's the kind of thought process with which they So that is a slow path. But from a consumer behavior, what we have seen for last 4, 5 years Recently is that there are if a customer wants to pay back and he has a planned thing, then there are installment lending products. That's why they have become 6 years, 7 years back, this number used to be almost close to 0. So this is a trend in last 4, 5 years that it has happened. So revolving is where the customer need is getting fulfilled for a very short term period. There are some sloppy payers also, people who forget to They are outstanding at the due date, so they will fall into go into a revolving model and then come back and then pay back. So There are those customers also. I thought I heard you saying that you prefer it this way. It's not an outcome Of the consumer behavior, but probably you prefer it to be 1 third each, which is what I was a bit curious about. Why would you structurally expect 1 third people to report? Because that will then have an impact on the way you assess So, judge, there could be a date to rest before issuing the card and all of that is their thought. So, let me clarify that further. We don't Expect 1 third of the customers to evolve. This 1 third is of the asset. And that's the number of customers evolving is actually far lesser, Much, much lesser. So this is how the trend line that we have seen over a period of time. And what it also does is If the mix of assets is broadly in this onethree, onethree range, the yields which you finally get Are in the space where our business model is rightly positioned. Okay. And secondly, when I structurally look at your business, it is designed for a very superior ROE, which typically most lenders can never hope to get, because the substantial part of the income comes from the card spends. And typically, what we have seen is your Non interest income covers all your expenditure rather than the provisions. So therefore, Structurally, that's a very superior business. You said fundamentally takes care of all the expenses. It's Technically very, very high ROE activity. And interest earning income portion also There is a high interest component ranging from EMI to your defaulting revolving customers all the way to 36 Therefore, if your loan your credit losses are kept in check, Even that part of the lending activity, there will be a subsidiary activity. If the two things we put together, Can we kind of say that structurally you should make More than 30% return on equity on a perpetuity, if not higher number than that. So thanks. Yes, this is the business model. You're right. I wouldn't like to comment on The perpetuity bit at this point of time, definitely. Yes, right now, we are impacted just like everybody else With the COVID and we have stressed book, so that is there. But yes, you're right. In terms of business model, This business can generate higher returns than most of the business because the income earning capacity per dollar of asset It is definitely better than any other lending business or payment business that you can think of. Thank you. We'll take our next question that's from the line of Mahesh Embi from Kotak Securities. Please go ahead. Just two questions from my side. Just a question, if you start seeing more number of transactions On the online and specifically, it starts getting concentrated on our 2 websites. How has have you started seeing any change From a revenue perspective for you? No, not as of now. But This is we believe that this is this concentration is there online between, let's say, the 2 large Online players, but as the point of sale gets opened up, we believe that point of sale will get will increase. The second thing is you should also note that as mentioned that there is a large set of categories are still not open. So the whole travel, the whole restaurants, the whole with card is a used to be a natural Medium of payment, those categories are not open. So they will also pick up. So it's quite well diversified from that perspective. Just kind of extending that question. When there is sales which is happening on specific days around these platforms, Do you have to kind of propose a specific incentive for them to be part of that or how does it work? So the way that it typically works is that when there is if there is a cash back offer because that is typically the Offer which comes in with most of these large players, there is and that cash back is the customer value proposition The customer directly gets that benefit. That benefit part of that benefit is shared between the merchant, the manufacturer And us. So there is a sharing arrangement which happens. And between so that's from a monetary perspective. Otherwise, advertising and other things are also looked at depending on who is able to put in what into the overall basket. So, Harshal, I'll share an arrangement between 3 parties. Yes, Harsh, my question was a little bit different. If there are 3 very large credit card issuers, Does the website provider kind of decide as to who does the partner for this program or all of them get an equal opportunity On how do you want to take this forward for that specific few days of sales? See, end of the day, the program is being run by the website, so they can always individually do it or decide who amongst themselves. But we Are a large player in this space. So almost all these websites, they connect with us, and we are in regular contact with them for various So, I think question is to Aparna. When you look at the spends today, Aparna, if you could just kind of qualitatively comment, have you started seeing spends Coming across all the set of clients, which is there, whether it's prime, subprime, how are you seeing the trends coming or shipping up in your So the spend, I don't think we should be looking at it as Prime, subprime or any but so one of the things we need to note is like we've mentioned earlier, there's a fair bit of dynamic portfolio management that we are doing. So if anybody is on the margin of or they have a very high probability of becoming delinquent, then the requisite amount of credit actions have already Taken on these lines, the lines are being brought down. And if they are trying to do any specific high risk transactions, those will get declined. So that kind of activity is happening. Now so lines are available to spend only from the better customers. So we've not really Any specific bunching of spends coming only from the lower score segments or anything like that? We haven't seen any such grouping of the Can you reverse the argument and say the strength that you're seeing today is almost similar to what you saw in 20 18, 90 or you think you have not reached that 1? No, no, no. It is not because as I told you, there are certain categories Which are completely shut at this point of time. They used to be mid teens in the overall mix. So that is not there. The second thing also which you would note, which we have given in the In the categories like, for example, the whole non discretionary set, which is your utility bills, Telecom, okay. So they are these categories are typically they are used by everybody. So And the good part is that a large part of that was again going through cash or for example, insurance payments through the insurance agents People who used to give cheques and make the payments now, all that is coming on online and is happening by the customer is being done by the customer regularly. So it's a very good sign actually from an overall digitization perspective. We'll take our next question from the line of Suresh Ganpati from Macquarie. Please go ahead. Yes. Just two questions. One is on the credit cost. If I were to really look at it, the last two quarters, It's been hovering around 10% to 11% of AUM. Do you think really the second half could be of course, notwithstanding a third wave, But can we see a substantial reduction in the credit cost numbers for the later part of the year? I'm not asking for a specific number, but can we really see this coming down? I think last time also in one of the interactions we said like we expected downward trajectory for the credit That was much before the 2nd wave. So I think I can only say like a second wave has actually delayed that downward journey. But the pace at which it will decline is macroeconomic environment and we gaining the complete collection efficiency Like a BAU kind of efficiency we need to get back. Consumers also should be accessible, customers should also be accessible. But Definitely the traffic period will be downward. I cannot comment on the slow part. I mean how fast we will be able to reduce it That we need to wait and watch. But over a period of time, as compared to May, the position in June was better. And again, as compared to June, Jolene's position is better. Okay. So that's clear. The other part is, of course, this question has been asked in a different way by various participants. Let me also try to attempt this. There is a big debate that the BNPL customers are Going to be $40,000,000,000 $50,000,000,000 in the next 5 years. Have you seen some signs of aggressive pricing in the market thereby you're Compared to do or there is an issue of loss of market share in certain of these segments, I don't know the industry data is actually not available, But how are you approaching this particular segment? I think if you traditionally look at the kind of This is our own company sector like GMC. I mean typically the limits will be minimum 30,000 to 40,000 kind of limits from a Small amount of even 5,000 and may have over around 10,000, 12,000. With regard to the potential, if you don't rule out the potential, definitely the market will definitely increase. And mostly it's very popular with the millennials and otherwise the NPC kind of segments. But wherefore will be perhaps some convergence will be there where The BSPL customers can potentially become customers of credit card once they build their good credit history. Or otherwise, we will also be making journey towards it. So there will be a convergence point. But firstly, we have to use the right channel of acquisition, right value proposition has to be offered. So there will be convergence Definitely, for a period of time, there will be we may have to have different product offerings to cater to that. We will also have to articulate some more risk appetite going forward, But we are waiting and watching and then we will be calculating our strategy based on the situation. Okay. Thank you, sir. Thank you. We would like to request participants to limit their questions to 2 per participant. Time permitting, you may come back in the queue for a follow-up question. Our next question is from Akriti Gakkar from Goldman Sachs. Please go ahead. Hi, sir. Thank you for the opportunity. I have two questions, starting with a quick one first. Do we utilize SBI, Yono, as a sourcing instrument? And if we do, could you please give us some idea around the proportion that is sourced from there? Yes. Yes, we YONU is definitely used both the app as well as there is an internal portal within the bank. So Both are used because that's the more convenient way of getting information in the specific customer who has given a mandate to the bank to share the information. So that is a preferred channel. That's definitely a preferred channel. And as of now, I think 20% of the sourcing happens through Uno. 20%. Yes, 20% of the sourcing has been to you, and it has potential for further increase. All right. Thank you. So, sir, I'm looking at Slide 4 of the PPT. And in the total receivables, 32% is EMI. How much of it is converted at pause for the industry and for SBI Cards? So we have not declared that asset balance. Out of this 22, how much is at the point of sale, But I can give you one indication that close to almost 10% of the new spends that converted into installment lending products. Okay. One last quick question. So 29% is revolver here in the total receivable book. What is the duration of this revolver book? It's about 3 to 4 months, okay. That's generally What we've seen in terms of how long the revolver stays the revolver. All right. Yes, sorry. One point is that it's important to note that these are revolvers. So anybody paying between 5% 100%, 99%. So we do have customers who evolve by paying 40%, 50%. We'll take our next question from the line of Ajith Kumar of Ambit Capital. Please go ahead. Thank you for the opportunity. So again on the sourcing, Is this jump in the open market sourcing to 62% from normal 45% to 50% driven by co branded partnership or normal open market sourcing? So could you please provide a breakup between co branded and retail within the supermarket sourcing you used to provide this data earlier? Okay. We see, we do not give the breakup among the channels in open market. But what I can tell you is that when we look at our total open Our covalent partnerships are a significant engine of growth for customer acquisition. So they do contribute a larger chunk. The other element is that the mix at any point of time also depends upon how the environment is. For example, in that quarter, when The mall gets shut or the organized retail stores shut then for example the fuel co brand could sell more. But in the time when the organized retail stores open Back again, then the situation normalizes. So the mix changes in terms of how it is among the various constituents. So it's a large component, but we don't give the exact breakup among the different channels in open market. Okay. Thank you. So is there any difference in the sourcing cost per card between this co branded and retail Saharan within this open market? So you're asking Co brand and retail, co brand is retail or open market card itself. So in terms of co brand, Open market versus banker, there is a difference in terms of the cost of acquisition per card. Cost of acquisition in open market tends to be on the Higher side than Banka because in Banka we get a lot more information from the bank and we can run pre approved programs. Within open market, there are different channels in terms of telesales, reapply, co brand and the normal point of sale. And those costs are staying in a certain there are these are 4 different cost elements Open market within a small range of each other, but we don't specify that value. What I can tell you is that open market cost of acquisition is higher than banker. Thank you. Our next question is from the line of Saurabh from JPMorgan. Please go ahead. So just two questions. One is this stage 2 book. 1 is what is your normalized level of stage 2 book? Shall we take that Q4 number as a normal number? And is this restructured assets is over and above the stage 2 book, correct? The restructured non NP asset? No, that's part of the Stage 2. Okay. And what will be the normalized Stage 2? I am just trying to compare what will be against this 12 odd percent, what's the baseline number, let's say, you had experienced in fiscal 'eighteen or 17. So pre COVID, it was in the range of about 8 odd percent. 8%, okay. And the second is, so generally on the interchange fees, So what you're seeing is an MDR pressure in the market. Have you experienced any interchange fee or do you think That thing would be under some pressure because the MBRs are coming down or you don't think that's what happened for the card company? So our interchange are broadly fixed and they've been consistent. If there is a change, the minor change happens on a month to month basis depending on the scenario because typically, for example, utilities will maybe Carry slightly lesser interchange compared to if somebody buys mobile from an online store. But if you buy a mobile from an online store or mobile from a POS, We get the same interest rates. There is no difference there. So the mix and depending on the monthly scenario and overall theme, It does make some bit of change, but we have seen it consistent for last 1.5, 2 years, 3 years. Okay. So you're not seeing any entity in the show. Okay. India can be negotiated between the acquirer and the merchant. So that is a very different thing. Yes, yes, okay. Thanks. Thank you. Our next question is from the line of Dhaval Gharra from DSP. Please go ahead. Hi. Two questions. First is, what percentage of the EMI book gets converted at the time of So, on the second one was the 3 dp EPP number outstanding number and provision on that. So on the first part, I just answered that some time back. We have not given the breakup of that asset into what it is. But what I also along with it, we have stated that of the new spend which happen Every month, we see close to 10% of them getting converted into installment lending products. On the ETP, 300 odd. Yes, about 300 odd per watt of VPP. Okay. Thanks. Thank you. Our next question is from the line of Nitin Agarwal from OTLAS Bosel Securities. Please go ahead. Yes. Hi. Thanks for the opportunity. Couple of questions. Firstly, like if you look at the average ticket size of UPI has been increasing from 1200 in FY 'eighteen to now 1900. So what is really driving this ticket size increase for UPI payments? And how much of this in your view is driven by market expansion or to substitution? So UPI ticket size, we don't have That detail of that data as to where the transactions are happening because we are not on the UPI platform. However, the P2M that we hear that is getting declared there is close to around 17%, 18%. So majority of it is P2P still there. So 17, 18 100 It's a good decent ticket size or small ticket transactions. It's about people giving money to each other From that perspective, but that visibility, we don't have as to why the ticket size is moving up or down, but it seems quite stable at 1800, 1900 for some time now. Okay. And secondly, on the presentation, Slide 10, like wherein we have given the spend categories, there is a like decline across All the categories are double digit decline. Category 2, 3 and 4 range between 10% to 48%. And but overall retail spends are down 9%. So what is balancing this? So is Category 1 like very big in size in terms of proportion of expense? Yes, you're right. So how much could this be, like, approximately in terms of overall spends? So we have not given that breakup. But as you rightfully figured out that overall spends, On a quarter on quarter basis, I'm not down by that much. We are instead of INR 29,000 crores, we are around INR 27,000 something crores, Okay. So it's in that range. And online actually has grown in the which we also said. We're not given the exact breakup of these because these mixes departmental stores usually is a very large category. And this is after we have taken out fuel. If you look at the disclosure there, fuel and automotive we have taken out because they are dependent more on what is the Price of fuel at that point of time and that is a growing category. Okay. And lastly, just the write off number, if you can like Mentioned it for the within the G and P, how much we have written off? Sorry, The GNP within the GNP, so GNP is the non written off rates and 9. The movement of, yes, movement of NPS, basically. So our NPE was 4.99% on a cross basis as of March. That has come down to 3.91%. But the composition of it in terms of slippages, reductions and reduction by the way of write offs? Yes. I think unlike a bank, we don't give that type of disclosure where we use the pages, then Upgrades, the increase in the NPA balances, typically that is the way the bank knew, but we have never given that kind of disclosure. But we give you a kind Picture around what are the gross write offs and what is the recovery. Of course, the opening balance and closing balance will be there. Thank you. We'll take our next question from the line of Jay Mudra from B&K Securities. Please go ahead. Yes, I have two questions. One is why credit card is technically kind of a VNPU product only, but Do you have a separate DMP product or is there any restriction in your charter or maybe from the period that you can I mean, do you have a V and P product as of now apart from this game offering? No. We don't as you rightly mentioned, credit card actually is a true original BNPL product because In this case, you can buy and then pay either in revolving terms on your own or pay in 3 months installment or 6 months, 9, 12. The choice is with the customer, but we don't have a separate BNPF product as of now. Right. And is there any Restriction in your charter or maybe your understanding with period? What we can issue is credit card. And so any BNPL type of product that if at all we build will be in the lines of credit card Because that's what we can do. Sure, sir. And the last question, sir, management overlay, is this Your over and above IREC sort of provisions or this is just purely those provisions which are Which has not been netted off in computing PCR? Or yes, so is this like Where and above what is dictated by IRAC or this is purely those provisions which have been set aside without Which does not go into PCR? So we provide as per the in day snobs, not IRAC, so the model shows up a number, whatever we provide in addition to the model is what is the management reserve. Which is already there in PCR calculation, right? Yes. Sure, ma'am. Thank you and all the best. Thank you. We'll take our next question from the line of Ravi Singh from Ooyala Luthra Asset Management. Please go ahead. Yes. So just one question on the retail spend insight slide. So this spend category rather than category What are the trends we are witnessing in the second half of June July so far after the unlocking started? And based upon this trend, what sort of normalization are you expecting? Do you think it will be a quick recovery in the spend level or it will be a longer So on the spend side, what we have seen is that till the 1st week of June, It was quite soft. It started picking up actually as the rolling lockdown started to finish. So it is actually the second half of June, which was very strong, where this started to pick up and become better. We are seeing that July is becoming out better than June, and it is stronger than June. So it is only after 15 June that the things have started to pick up. Right. So, see, as of now, it's quite early, but what we have seen in July is quite strong. Understood. Thank you. Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Rao, MD and CEO of SBI Card for closing comments. Over to you, sir. Yes. Ritu, let me Close the call by reiterating our business fundamentals are very robust and we follow all healthy We continue to closely monitor the situation, take all measures to minimize the risk and ensure a sustainable growth. The Q1 results I shared with you reflect our stability and growth potential. Lastly, the need of covering for all of us to remain safe and extremely cautious Thank you, members of the management. Ladies and gentlemen, on behalf of SBI Cards and Payment Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.