Ladies and gentlemen, good day, and welcome to SBI Card pre-Q3 FY 2022 earnings conference call. 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rama Mohan Rao Amara, Managing Director and Chief Executive Officer of SBI Card. Thank you, and over to you, sir.
Yes. Thank you, Faizan. Good evening, everyone. I extend a warm welcome and wish you a very happy new year. Thank you for attending the earnings call for Q3 FY 2022 today. We highly appreciate your presence and continued support. Firstly, I hope you and your loved ones are safe and healthy. The third wave of the pandemic can be felt, but however, many aspects offer hope. There is higher preparedness this time around. 1.6+ billion vaccines have already been administered cumulatively, with about 70% of the adult population now covered by both the doses. Another positive is that over 50% of 15-18 age category have got the first dose of the vaccine. The rate of hospitalization, thankfully, is lower than the previous wave. Thus, despite continued battle with the pandemic, consumer confidence and business optimism continues to be stable.
Looking broadly at Q3 FY 2022, as expected, it started with the festive season, significantly driving up the overall credit card spends. As a result, we at SBI Card saw our total spends crossing INR 1 trillion by November 2021 itself. Retail alone crossed this mark, INR 1 trillion mark, in nine months, that is, in December. As per RBI report, the total credit card base of the industry expanded to 67.6 million in November 2021, registering 12.4% year-on-year growth, which is the highest in last 16 months. However, still the penetration in the country remains very low, offering a long growth runway. Digital payments in India have grown at a very fast pace, and credit cards continue to grow steadily as an industry with a strong bounce back after wave two.
The government and the regulator have been providing a number of enablers to support penetration of digital payment formats. Now, coming to the question of MDR, the discussion paper from RBI is still awaited. In the past also, discussions have taken place on MDR, but credit card has been excluded in view of typical nature of the industry, which includes costs to the issuer towards credit risk, free credit period, reward cost, et cetera. However, in case a revision takes place, various levers do exist with the industry players to offset the impact. I will now come to business overview and new initiatives. Q3 FY 2022 can be characterized as a return to growth and profitability. Let me share with you the reason for this optimism. To start with, Q3 FY 2022 had two big business milestones for us at SBI Card.
For the first time ever, we added 1 million+ new accounts during the quarter. During Q3 FY 2022, we also saw highest ever quarterly spends, crossing INR 55,000 crore, both retail and corporate spends put together. This performance is an outcome of customers' belief in us and the agility of our go-to-market strategy. Steady and robust increase in new accounts has helped us to expand our customer base significantly, and thereby overall spends also. Our cards in force grew at 15% year on year in Q3 of FY 2022, thus reaching 1.32 crore mark. As per the RBI November 2021 data, our market share of cards in force increased to 19.2% from 19.1% in FY 2021.
As mentioned earlier, our card spends reached INR 55,397 crore, witnessing 47% year-on-year growth during Q3. There has been a sharp increase in retail spends and corporate spends, with both witnessing a 36% and 93% year-on-year growth respectively. Importantly, we witnessed 34% growth in discretionary spends. This is highest since onset of COVID-19. We continue to bolster our product portfolio. During the quarter, we rolled out SBI Card PULSE, a first of its kind credit card catered to fitness and wellness segment. This is another example of our sharp focus on changing consumer needs and spending behavior and aligning our go-to-market speed with it. Let me briefly also share with you a few actions for future capability enhancements. We continue to invest in technology to build future capabilities and leverage the digital for business transformation.
We now issue instant card for our ETB customers, that is existing customers, helping achieve cost efficiencies and yield faster activation. The digital journey for NTB prospects is also in the pipeline. We have upgraded risk models to adaptive machine learning, which has yielded process efficiencies and will further help generate balance build-up and EMI conversions. We are upgrading marketing technology stack, which will enhance our engagement throughout the customer journey and drive better ROIs on marketing spends. During the quarter, SBI Card partnered with Paytm for tokenization, enhancing convenience for our customers. We have also upgraded our SBI Card mobile app with smart multi-experience solutions, among other enhancements. We have been witnessing favorable trends in asset quality, which have continued into Q3.
I would also like to convey that there is no impact of the recent RBI circular on more stringent NPA recognition norms for NBFCs, as SBI Card was already following these norms. Lastly, in our commitment to be compliant with the regulations introduced time to time by the regulators, we successfully switched to the new mechanism for recurring payments as per the deadline mandated by RBI. We are also ready with card-on-file tokenization implementation, though the roll-out deadline for this has been further extended to 30th of June, 2022 by RBI. I am extremely grateful to my colleagues at SBI Card who have always risen to the occasion and made contributions that have led to our success even during the difficult pandemic phase. I am also thankful to our shareholders and other stakeholders for their constant support and their strong belief in us.
Let me now take you through our financial performance for Q3 of FY 2022. As can be assessed from some key metrics I have already shared, it is the power of robust business model and our calibrated measures that helped us to achieve such strong business performance. During Q3 FY 2022, SBI Card saw strong revenue performance backed by resilient interest income and strong fee growth. Our business model is inherently strong with robust fundamentals. Based on strong business performance in the quarter, the company achieved PAT of INR 386 crore at 84% year-on-year growth. Driven by 47% growth in spends, receivables have grown by 13% year-on-year to more than INR 29,000 crore, further leading to total income growing at 24% year-on-year to INR 3,140 crore.
Our operating expenditure was higher by 28% year-on-year, driven by higher business volumes, festive campaigns, and our continued investment for future growth. On asset quality, our GNPA has come down to 2.4% as compared to 3.36% at Q2 FY 2022 and 4.51% at Q3 FY 2021. Net NPA for the period is at 0.83% as compared to 0.91% at Q2 FY 2022 and 1.6% at Q3 FY 2021. Overall, RBI book stands at 2% of the total receivables as against 4% in Q2. We have created additional overlay of INR 76 crore for wave three and the overall management overlay to cover ourselves for future credit risk stands at INR 162 crore as on December 2021.
Return on average assets for the quarter ended December 2021 is at 5%, which is higher by 179 basis points as compared to 3.3% for Q3 FY 2021. ROAE is at 21.2%, which is higher by 7.2 basis points as compared to 13.8% for Q3 FY 2021. We have delivered consistently improving business performance over the quarters and when we see a consolidated nine-month view, the results are impressive. Our new accounts have grown by 36% year-on-year, spends by 53% and our receivables grown by 13% to close at INR 29,000 crore. PAT of INR 1,035 crore at a growth rate of 28% enabled by strong revenue performance and lower credit cost. Our portfolio quality has been improving.
GNPA rates have come down to 2.4% and the ECL rate excluding additional overlay at 3.4% is very close to pre-COVID levels. Our liquidity position continues to be strong during Q2- Q3 and the capital adequacy ratio for the period ended December 2021 is at 24.2%, besides the regulatory minimum of 15% and the Tier I is at 21.3%. Our liquidity coverage ratio for the period ended December 2021 is at 73% as against the statutory requirement of 60%. Our credit ratings remain excellent with the A1+ and AAA ratings by CRISIL and ICRA for both short-term and long-term borrowings.
Overall, while the industry experts and the government are hopeful of lesser impact of current COVID-19 third wave on the business and economy, it is best to move forward with caution and closely monitor the domestic and global cues. At the same time, I would like to reinforce our belief in the inherent strength of our business model and risk structure, which has so far helped us maintain a high level of business resilience and ensure sustainable growth. Tremendous growth opportunity exists in the Indian credit card market. SBI Card is well-placed to exploit it to grow further. We are committed and will continue to pursue all opportunities to maintain a sustainable growth rate to deliver great value for our shareholders. With that, let's open the call for questions. Faizan, you may please open the call.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
One moment.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The first question is from the line of Dhaval Gada from DSP Investment Managers. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. I had a few questions related to. The first one was on other income. So, during the quarter, we saw about INR 250 crore of other income. I presume INR 140 crore was related to recoveries. What explains the balance number? It's higher than the trend line. That's the first question. The second one was on the spend-based fee. So, you know, one of the observations is that it's pre-COVID, this number used to be about spend-based fee as a percentage of overall spend used to be about 1.6% on average. This number in the last two quarters was about 1.4%, and this quarter as well, it's been around the same level.
What would drive this number you know higher? Is it spend composition or any other you know variable that one needs to keep in mind? That's the second question. The last one was on cost to income. Overall you know this quarter the number was around 60% highest in since the time we've you know IPOed. Just directionally is it a quarterly phenomena or directionally any comments that you have on cost to income would be useful. Yeah, thanks.
Yeah, thank you. With regards to your clarification, I mean, seeking a clarification on why there is increase in the other income. You are right. INR 140 crore roughly is on account of recovery. Around INR 108 crore is on account of GST refund, which we a couple of years back created as a provision. It was a kind of double payment. We claimed it from the authority and we had to adopt a legal recourse for that. Finally judgment came in our favor, and we got the money refunded by GST authority. This translated into a kind of provision reversal, so it was recognized as other income.
Understood.
Yeah. With regard to spend-based fee, yes, the trajectory is more or less around the percentage. Girish, you can expand on this.
You're right, it's gone up because in the mix, the corporate spend has gone up, is higher. On corporate spends, our fee rates are comparatively higher than retail spends.
Sorry, Girish, actually it has gone down. If you see for the quarter, it's about 1.41%. This number pre-COVID used to be 1.6%. Last quarter was about 1.42%-1.44%. Ideally it should have gone up given the corporate mix was higher. If I remember right, the number is about INR 780 crore, spend-based fees.
Dhaval, we will come back to you. Okay? From a mix perspective or as a rate, corporate rate is higher than retail. As the corporate mix has increased this quarter, you would see a rate going up slightly. Okay? Let us check back on the numbers that you just told.
Okay.
With regard to your query on cost to income, directionally whether it is unique to Q3, to some extent you are correct in the sense like Q3 coincides with H2 FY 2022, which calls for conducting a lot of marketing campaigns and extending the cashback to customers. On top of it, our corporate spends also increased by almost 93%, which entailed again a pass back to the corporate customers. Of course, the business related investments are also there in terms of new acquisition. Our new account sourcing has been quite robust at 1 million, which is like a 10% year-on-year growth. All these culminated in terms of higher cost to income ratio for the quarter Q3.
Understood. Thanks, sir. I'll come back.
Thank you. The next question is from the line of Anuj Singla from Bank of America. Please go ahead.
Yeah. Thanks, sir. Thank you very much for the opportunity. My first question is regarding the impact of competitive intensity. One of the biggest private banks highlighted in the recent quarter, there is a lot of pressure on fee and other income. Have we seen similar waivers in this quarter on the late fee or maybe on a membership fee? The second part of that question is, does it extend to MDR as well? There is a key concern that because of the competitive intensity, the MDR rates will continue to trend down. Even if the mix remains same like to like, if you can give some commentary on that or retail versus retail. Should we see MDR rates trending down from here going forward?
Anuj, on the MDR, what happens is, as an acquirer, when you're dealing with merchants, you can have a contract for an MDR. Okay? We are in the issuing business only. For us, we get our interchange, which is dependent on the spends and the type of card which is used in that, at that merchant outlet. Our interchange is fixed, come from Visa and Mastercard and RuPay and Amex with respect to. It does not depend on the exact contract of MDR acquiring bank and the merchant. Even if the MDR keeps going up and down, our interchange is completely protected in that sense.
Okay. Okay.
Okay? As far as the other question that you asked on the competitive intensity, yes, competitive intensity is there, but we have not seen any increase in waiver rates across the portfolio. It is broadly similar waiver rates that we have seen in the past of either whether it is late fee or annual membership fee. It is broadly the same trends. There is no m ajor change or no change which is worth making some differences or changes into our policies or principles.
Thank you. The next question is from the line of Shubhranshu Mishra from Systematix. Please go ahead.
Hi, sir. Thank you for the opportunity. A couple of questions. First is on the risk management. If you could explain what kind of collection infrastructure we have, how many collection agencies and how many on-roll collection managers and off-roll B2Bs as a first. Second is if we can understand the cost of acquisition, let's say, SBI customer versus a non-SBI customer. These are the two questions.
In terms of collection infrastructure, we have a fairly extensive network, and it's a combination of telecalling centers that we have, which is again a combination of some we run with our own staff and some is an agency. We have a large number of field agencies specifically to manage some of the higher bucket. Now, in terms of agency numbers, we have 500+ agencies. I think the infrastructure, whether in terms of telecalling or even physical reach is really not an issue. There are very good agencies now available. Additionally, we have a very robust collection system as well, so which is a workflow management to manage all aspects of collection, which also has a component for us to be able to do digital collections.
I'm not sure if that answers specifically your question, but in terms of the infrastructure, we don't really have any concerns, if that was your question.
Number of employees in a system who are in a collection group, that can be too.
Our own FT, if you were to include all agency managers, would be in excess of 700.
Sure. The second question was?
On the question of cost of acquisition difference between banker channel and open market channel, yes, there is a difference. Banker channel tends to be a lower cost of acquisition than the open market. There are multiple other variables, you know, which determine the cost of acquisition in a particular period. It isn't that there's a fixed value of difference between the two, but directionally, if one was to understand maybe, you know, it's a rough idea. It's a range, possibly 0.7x-0.8x of open market cost of acquisition, possibly, you know, you get in banker. Like I said, it varies. There are many other factors that will come into play.
In banking, our ability to run pre-approved programs is fairly strong because of the information that is there on the bank accounts, and that can be used in building models, which gives us a better throughput.
Many thanks. I'll come back in the queue.
Thank you. The next question is from the line of Karthik Chellappa from Buena Vista Fund Management. Please go ahead.
Yeah. Thank you very much for the opportunity, sir. Two questions from my side. In your opening remarks on the MDR discussion paper, you mentioned that the industry as well as SBI Cards have various levers to fully pass it on. Assuming that to be the case, what do you think will be the impact on industry growth rates?
Yeah. When I said levers, it is basically looking at the value proposition typically a credit card has in terms of free credit period of 50 days-52 days, which has to be funded by the issuer and then the credit risk being borne by the issuer and of course, the strong loyalty and reward kind of program, the cash backs and all that stuff, these are all the benefits that accrue to the customer. What we were articulating is, like if the change is very significant, then obviously that will prompt the players to look at what components can be tweaked and how much can be absorbed or how much to be passed on to the customer. This is all a kind of chance, I mean, opportunity that is there.
Having said that, still we need to see the discussion paper. I believe RBI is yet to come out with the discussion paper. We don't even know the contours of the changes. In fact, we are hopeful that actually the kind of dispensation or the kind of recognition what they were giving to the credit card industry earlier, we are hopeful that they may continue with the dispensation, but nevertheless, we need to wait and watch for the discussion paper.
Okay. Got it. My second question, sir, is that this is the first time I think in a quarter where we have crossed 1 million in new accounts. The terms of these 1 million cards that we have issued compared to, let's say, last year same quarter when we added about 900,000, have there been any distinction in the terms that we have issued, either in terms of the card fee or waivers or any other special schemes that we have done, or are they broadly similar? I also noticed that this quarter, the share of tier two and tier three in new account sourcing is probably one of the highest in the last six quarters-seven quarters. What would explain that?
See, normally, we know we always target a kind of banker and open market contributing 50%, 50%. Q1, particularly when you look at the quarter one of the current financial year, the banker's share was less. From Q2 onwards, they have picked up and their sourcing has increased as was presented in the slides. Banker contributes majorly to this Tier 3, Tier 4 kind of accounts where we are comfortable sourcing, where we need not set up separate offices for collections, et cetera, because typically we have access to the operating accounts of these customers. The banker provides that comfort. Based on that risk mitigant, we are actually able to reach out to these Tier 3, Tier 4 customers.
Whenever banking performs extremely well, then to that extent you can see a significant contribution from Tier 3, Tier 4 customers.
No change in terms, right? In terms of fees or fee structure also for the new accounts.
Absolutely. I mean, this is similar to any other quarter.
Okay, got it. That's all from my side, sir. Thank you very much, and wish the team all the very best.
Thank you.
Thank you. The next question is from the line of Param Subramanian from Macquarie. Please go ahead.
Hi. Thank you for the opportunity. Firstly, I wanted to ask on the revolver mix. So obviously we are well below, you know, pre-COVID sort of levels. Do you think, you know, this is sort of bottomed out, and does it improve from here? Any comments on that? Secondly, on your credit costs, you're still at about 9% gross credit cost, whereas pre-COVID this used to be about 6%-7%. Does that, I mean, how long before we get back to that sort of level? Those are my two questions.
Yes. I think with regard to your revolver question on revolver, having seen the kind of variation that happened throughout the quarter, of course we are giving the monthly quarterly pictures to you, but internally we looked at the trending part. It has bottomed out in October and again started improving. In fact, in absolute terms also, while the NEA has grown by 9%, revolver kept pace with that. Ideally, it should outpace that growth so that actually its contribution to the overall NEA should increase. It is taking time. Definitely it is taking slightly a longer time. We are hopeful because, as you know, like we have clamped down on certain segments of customers one year back or maybe about 15 months back.
Slowly, depending on the kind of comfort that we have, we are recalculating or ring-fencing, permitting these segments of customers. Not a complete blanket reversal, but carefully we are picking and choosing a small subsegment of these customers. Of course, we have the benefit of some alternate data. We are consuming that in terms of carefully underwriting. This is a journey, we are hopeful that this will improve, but it will take some time. With regard to your other question on the gross credit cost, yes, I think to some extent. I mean, the trend line is okay, particularly if you take out the INR 76 crore overlay, which is more like a contingency reserve that we created. It is not allocated to any segment, so it is not for any identified stress.
It is more like keeping a cushion for, in case the wave three impacts the delinquencies, that kind of contingency. If you take it out, it is actually 7.9%, which is in line with the trend expected. Could it have been maybe 6%? Yes. Ideally, we would have desired. Slightly, the RBRE portfolio flow rates, I think, they were higher than what we anticipated, so that we had to absorb in the current quarter in terms of recognizing the stress and even accelerating some charge-offs. In fact, we disclosed in the note also that more than INR 200 crore we went for accelerated charge-off with, of course, the corresponding provision relief.
The overall percentage in the RBRE, if you look at, it is only 2% now. Out of this 2% also, 70% of the portfolio is almost current. That means like it is less than 30-day delinquency. Only 30% is in 30-plus bucket. We are very hopeful that actually the credit cost will further come down. Anju, would you like to add?
No, I think she's covered it.
Great. Thanks, sir. Thanks for those comments. Just if I could ask one last question. Could you explain the rationale for this INR 80 crore, you know, management overlay you've made? Because, you know, asset quality seems to be improving with NPAs coming down. Do you look to reverse this anytime soon, as in if things are fine after the third wave? Yeah, that's it from me. Thank you, sir.
Like, sir had mentioned, the asset quality trend is a sequential decline quarter- on- quarter. We have made a contingency provision of INR 76 crore, which is not for any identified stress assets. It is just an estimate that if wave three creates the same degree of disruption as wave two, we would see some increase in delinquency, especially from our earlier buckets. This is just to cover that. It is purely an estimate, it's like a contingency floating provision. That is the logic of it. We looked at our deterioration, and as you would notice, obviously in wave two the extent of deterioration was not as much as wave one. Our ability is much better, so that's just a rough estimate that we made.
To your point, Mr. Subramanian Iyer, that we will be able to write back if the trends are good. I mean, if there is no heightened delinquencies, we will be able to write back this provision. It is more of a contingency in nature.
Okay. Thank you so much and all the best. Thank you.
Thank you. The next question is from the line of Subramanian Iyer from Morgan Stanley. Please go ahead.
Yeah. Thanks for the opportunity. This is actually a follow-up to the question just asked. Basically if I look at the rate of bad loan formation, it seems to have basically say kind of stagnated around that 10% annualized mark. On my rough computations it's approximately the net new provisions for this quarter are about INR 600 crore and that's been the number in the last two quarters also broadly. When do you see this number actually coming off?
As we were saying, a majority of our stage three in the three earlier quarters was also on account of the RBRE book. We have almost done an accelerated charge-off of more than INR 200 crore out of that book. The quality of our incoming book is significantly better. If you look at our gross credit cost sequentially coming down, I think over the next one or two quarters you would see that come back to the earlier levels that we were in.
Understood. Mr. Rao mentioned that about 70% of the residual RBRE book is less than 30 days past due. So is that a part of stage two or stage three?
It's stage two.
Okay. Thank you. Thank you.
Thank you. The next question is from the line of Amit Nanavati from Nomura. Please go ahead.
Yeah, hi. Question on MDR. If you can broadly give some sense on, you know, broad categories where the industry kind of enjoys higher MDR rate versus lower MDR rates, be it in terms of, you know, size of merchant, online, offline or, you know, essential like utilities versus discretionary. Just broad categories where the MDRs are much lower than the overall average MDR. That will help me.
I won't be able to comment on the MDR part, but I will tell you about the interchange that we received.
Yeah.
Received from the networks. Typically, there are two ways that they cut it. First is on the discretionary spends, typically, the interchange is higher. On the second way to look at it is on the premium products, the interchange is higher. We get, for example, higher interchange on our Elite, AURUM, Prime, those cards. It's because of the kind of category of card that it is. Some examples I can give you is that the interchange on, for example, categories like consumer durable, apparel, jewelry would be higher. Categories like travel agent, hotel is higher, restaurants is higher. Utilities is lower. Insurance payments would be lower. There is typically no interchange on some categories like fuel. There are these different categories in which they are broken up.
Essentially, the principle remains the same. Discretionary, non-discretionary, premium versus non-premium.
I'll just add to what Girish said, and especially, Dhaval had asked that question about reducing interchange compared to the previous period. A couple of things. One is, as Girish mentioned, that category-wise interchange is different. What has happened is, when you're comparing to a pre-COVID period, the travel is yet to pick up, so the interchange on that is higher. That is yet to pick up. That is what has impacted the interchange. While the utilities et cetera, their share is higher. The second thing is, the FX markup that we get on international travel, that used to be high earlier. That segment is yet to pick up, and that's what has also impacted the overall interchange.
Got it. Broadly, just, if in case, let's say there is an MDR rationalization and this is more ticket size focused or, you know, more, essential category focused, fair to assume that, the net impact for the industry would be relatively much lower, because you don't retain much of the interchanges anyway, which was lower there.
We won't be able to speculate because idea is once we see the actual changes, what RBI or any regulator proposes. However, at this stage, I must tell you that the interchange on utility is quite looked at the lower end of the spectrum. Okay? There, the ticket sizes are also lower. Average ticket size on a credit card varies between INR 3,500-INR 4,500, depending on the card type and other things. In those categories are primarily large ticket size categories are consumer durables, jewelry, which are in any case, as I mentioned, higher interchange categories. Lower, the utility bills, telephone bills, those are the categories with lower ticket size, and there the interchange is already at a lower end.
Thank you. Mr. Nanavati, may we request that you return to the question queue for follow-up questions. Thank you. The next question is from the line of Pranav Agarwal from Edelweiss. Please go ahead.
Yeah, hi, sir. Three sets of question. To start with, when I look at your 30-day spend active rate, that number has supposedly gone up to around 52%. What would you attribute this to? Do you see this happening for the industry as well, or probably for us it is relatively on the higher?
30-day spend active rate at 52% is good. We are seeing that it is higher than the industry. That is what we get from Visa and Mastercard. There are primarily two reasons for it. The first is that it was a festival period. We have also invested into getting the customers to spend. Lot of offers have gone to the market, so that typically encourages a lot of these customers. We have seen that once customers start using the card, even if they will not use the card every month, but they start getting used to it, and you see a much higher rate on a 90-day average kind of stuff. But the customers start getting into a habit of using the card and paying for the thing.
That is one reason. Our active rates are higher than the industry and that one other major reason for that is that we charge a fee for most of our cards at the point of sourcing, even though we will give the customer the same value back once he pays us the fee. Not selling free for life cards is also another major contributor to having an active portfolio.
Perfect. Any indication as to what industry could be working with in terms of 52% corresponding towards per industry, any ballpark number?
Visa and Mastercard have always told us that we are higher in the industry average by close to 5%-6%.
Okay. Secondly, would this sort of trend that we probably are seeing at least on a spend active rate, do you see that over a period of time that percolating into higher receivable mix or in terms of higher revolver mix? Do you see that happening or too early to draw a trend over there?
For a higher revolver mix, there are multiple things that have to come together to happen. One is, yes, you are right. Spend is the first important contributor because if the customer does not spend, then revolving will not happen. Second thing is also about customer's ability to pay, customer, how he is looking at that stage, the utilization on the card. There are multiple levels basis which customer decides to revolve or not to revolve. Just give us a minute.
Thank you, sir.
No, go ahead.
Mr. Agarwal, we request that you return to the question queue for follow-up questions.
He will not answer this.
Okay.
Okay. Can you hear me? Hello?
Yeah, we can hear you, sir.
Okay, as I was saying, there are multiple such things. Instead, what is also happening is that we are seeing that a lot of customers are getting, using their new spends and converting that into the installment lending products. If you look at it, and as was being mentioned earlier in the opening remarks, the good part is that our rate of revolver increase in absolute terms, revolver asset increase, was similar to the overall asset increase, which is very good. That's. And this is the trend which we have seen after October. Because if I, if you look at month-on-month, October actually went down, and it is the recovery in November, December that it has, it is looking like that.
While the interest on installment lending products is increasing, as more discretionary spends are coming, high ticket size spends are coming, we have seen more EMI conversion. That rate has been much higher than the overall asset increase rate. It's a good combination. It will settle at some level. 27% is not a level. It obviously is gonna go up as the things remain normalized. What level it settles, we will have to see. The second part is we also believe that the terms in these lending products, term assets, that will also increase further. There are two levels which are playing there, not only one.
Okay. Just last bit on this, on this one.
Sorry to interrupt you, Mr. Agarwal. May we request that you return to the question queue for follow-up questions?
Sure, I'll do. Thank you.
Thank you. The next question is from the line of Ajit Kumar from Ambit Capital. Please go ahead.
Thank you for this opportunity, sir. Just one question. Your cost of fund has declined on QoQ basis this quarter, and this decline in cost of funds has come after increase in last quarter. Any qualitative comment there on this trend? Plus why has the cost of fund come down despite increase in borrowing, as your borrowings have increased substantially in this quarter? What can be the trajectory going forward as far as, you know, cost of funding is concerned? That's it.
See our cost of fund in the last quarter was mainly because of the, you know, the year quarter end averages of receivable. That's why it got impacted and it showed a little bit higher. Our daily cost of fund has been running around 5.4%-5.5%, and that's what we've been reporting on a quarter-to-quarter basis. We do believe that at least for the next few months, a similar kind of cost of fund should continue. While the increase in borrowing is there, but fortunately, we've been able to borrow at quite competitive rates in the past, and we believe that at least in the near future, we'll be able to borrow like that.
Okay. Thank you, sir. Thank you. That's it from my side.
Thank you. The next question is from the line of Bhavik Dave from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi. Good evening, sir. Sir, a couple of questions. One is on your cost, OpEx, where we see last time around we did some 960,000 cards that we added. This time around, like you said, 1 million cards. If you look at our OpEx on an absolute basis on the other OpEx side, which was around INR 1,200 crore, which jumped to INR 1,560 crore. Just wanted to understand if you could give us some sense on what is the increase in that number that we are seeing. Is there any runoff due to the season? If you could just highlight something on that would be helpful.
Number two is on your profitability on the spends that happen on a corporate versus retail. Corporate will have lower NIM, we understand, but will the profitability be higher as your cost of acquiring that customer spend is lower and also your interchanges or your spend-based fee income to spend is relatively higher. On the profitability trend on the corporate business and the cost front, these are two questions. Thanks.
On the cost front, yes, you're right. If the number of accounts have increased, so will the absolute cost of acquisition too increase. The rate is more important, so rate was
Ladies and gentlemen, the line for the management has got disconnected. Request you all to please stay online while we reconnect them. Thank you. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you.
Yes. Sorry, we got disconnected. What I was saying was, yes, the cost of acquisition has gone up as the number of accounts that we have sourced are more. The rate of acquisition, which is the cost of acquisition per account, that has remained the same. It's more of an absolute amount what has come into the total cost. The other one is, yes, you're also right. The cost, the spend-based costs, have also gone up. One is because of the festive season that is there. You must have seen there were cashbacks being offered, et cetera. That has come. The other thing that we see is as the spends are rising consistently, and we are also seeing that the customers are using the cards regularly.
The reward point cost and the redemption of reward points is also coming back. That we consider as a good cost that shows the engagement of customer if they're regularly using the card, they are utilizing the benefit associated with the card. That is also there. The third thing is as the corporate spends rise, there are costs associated with them as well, which rise alongside. That too has come. That also, you know, leads me to the other question that you had, the profitability on the corporate card. The profitability on the corporate card is on the lower side compared to a retail card.
This is more of a, what we call it as a pass-through kind of business, wherein the corporate uses the card to get some amount of benefit instead of making a bank transfer. Similarly, our margins are also lower. What we do is, this gives us an entry point into the corporate account, wherein the corporate customer initially uses it for utility payments and later on brings it as a travel and T&E kind of usage to its own employees. There the margin for us improves. This, for anyone on the corporate side, takes a while for it to build up.
Also because of the fact that these days, travel is restricted, not many people are traveling, so that bit is yet to come. What is happening is, through our corporate card program, we are able to enroll more and more corporates into the utility payments at this point of time, and then the T&E would follow at a later date.
Correct. Just, sorry, one follow-up. On the cost front, this quarter, like one of the participants mentioned that 60% is the cost-to-income trend. Historically it's been more at 57-odd %, 58- odd %. With the festive season behind, should this trend more towards that 57%, 58% for the coming quarters? Is that a fair assumption to work with?
I will not give a specific number, but in festive season, you look at our previous, you know, years' numbers as well. Every time during the festive season, the cost to income goes up because there are lots of cashback offers, et cetera, made. This will come down in the coming quarters.
Sure. Understood. Okay. Thank you.
Thank you. Ladies and gentlemen, please limit your questions to one per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Harshvardhan Agarwal from IDFC AMC. Please go ahead.
Oh, hi, sir. Thanks for the opportunity. Just wanted to understand the total write-off that you have done during the quarter.
Can you repeat? My network is poor. Write-off?
Yes, write-off.
812.
Sorry, I didn't get that number.
812. This includes accelerated write-off of INR 226 crore against which we had a corresponding provision release.
Sure. Thank you now, sir.
Thank you. The next question is from the line of Shweta Daptardar from Prabhudas Lilladher. Please go ahead.
Thank you, sir, for the opportunity. Your EMI mix as a percentage of overall receivables has already converged to 33% share, and you have in the past one-third mix for each and every component. Directionally, how and when do you see this happening?
See, directionally, the way that we look at is that RWA, RE should come close to almost close to nil at this point of time. It's 2% is left only.
It started with 9%. In two quarters, it's come to almost close to zero. As was mentioned earlier, 70% of it is current, it should continue to come down as we go into it because nothing is getting added to it. Our term balances are already at close to 13.4% or 33%-34%. That should continue. As I was mentioning, there is a consumer behavior positive in that direction. Even though there are these balances, the term for these balances is lower because there is a pay down which happens on these balances quite quickly.
However, a lot of new demand is there and we have seen a very strong demand in this, for example, in this festival season also leading to an asset increase in this term portfolio that should go up. We also believe that our revolver, as was being mentioned earlier, at this point of time it is pacing almost at the same rate as our overall asset increase, so it remains stable. However, in the month of October it had come down, and then in November and December, because of the spends in October and November, we have added in absolute amount to the revolver, and it's now at 27% and we expect it to go up.
By when and how much, we'll have to see, but it does take two, three, four quarters for these new spends to start stabilizing and getting into the asset buildup as a customer. The transacting assets which is today 30 will come down given that the above three, I've already given the expected direction.
Sure. I'll come back into queue for the next question. Thank you.
Thank you. The next question is from the line of Aakriti Kakkar from Goldman Sachs. Please go ahead.
Hi. Good evening, sir. I have one question on the competition front. There has been announcements about other banks getting into various partnerships, mainly with FinTech to issue cards. What is your strategy on this front?
About partnerships? Can you just repeat the question? The voice is not clear.
Yeah, sorry. Is it better now?
Yeah. Yeah.
Yes. There have been a lot of announcements about other traditional banks, other credit card issuers getting into partnership with FinTech to issue credit cards. We have been seeing an uptick in the traction on that front. What is your strategy on that? Also, do you see any competition from this?
I mean, we don't know. We can't comment on their strategy, whether they have a new NBFC or a new bank which were not into credit card play, but suddenly having a tie-up with FinTech, et cetera, for issuing the credit cards, whether they fully understand the ramifications and whether it is a scalable model or not, we don't know. We continue to have partnerships. We have a lot of banks with whom we have partnered. We have issued co-branded cards, et cetera. There, the transparency is there and the scalability is proven. Of course, the entire risk is on our side. Only the marketing part is done by the entity and the bank partner.
I think this impending digital lending kind of discussion paper that was there, and if it takes some shape by way of some circular, et cetera, then more clarity will be there. People will understand what is the additional compliances they will have to do. That may change the game slightly. Yeah.
Right. I'll have one more question, if I may. It is a little open-ended, but would be great if you can give us some direction in terms of how you're thinking about the business. If faced the choice between growth and profitability, what would be your choice? Which matrix is the more important matrix for you? Growth or profitability?
I think we as a large player and as a regulated entity also, we don't have the choice of only picking one. I think we have to marry both. That way the philosophy at SBI Card has always been like a sustainable growth, not pursuing one at the cost of other. For that purpose, obviously it requires lot of effort in terms of identifying the customer segment very, very clearly, engaging with them, offering the right product, offering the right value proposition to them so that they will continue to engage with us. The strategy is always like a sustainable growth.
Thank you.
Thank you. The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund. Please go ahead.
Thanks for taking the question. Sir, to understand how do you think about penetration in the salaried segment in the bank channel, in the SBI bank channel? What is the potential there, and what are you offered by the bank? If you can talk a little bit about that.
Yeah. Okay. See, the way we look at the potential over there are anywhere between INR 430 million-INR 450 million or 43 crores odd customers at the top of the funnel. We exclude Jan Dhan. We would exclude a degree of dormant and active accounts. We would exclude some of the rural areas and geographies, you know, where we won't issue cards. It's an estimate of the eligible population, which is around 200 million or 20 crores. Within that, we have, you know, issued about 6 million cards at this point of time, which means the balance remains an opportunity.
Both from the asset customers of SBI and the liability customers of SBI, and then also the partner banks where these arrangements exist. That is a huge potential in terms of, you know, issuing cards. To, you know, preempt the question saying when a lot of cards can be issued in a short period of time, the answer would have been yes. For the fact that they need to be profitable, they need to be spending on the card, and accordingly, they need to be picked up, you know, prudently. They are picked up in different phases or programs so that we can continue to monitor these metrics which determine, you know, how this program needs to move forward.
We run this program called Shikhar in multiple waves, and we've booked a large number of cards under this particular program. That is where the total potential is and the current penetration. There's a lot, you know, that more can be penetrated over there and that program will continue to evolve with more digitization being brought in.
That's all from my side.
Thank you. The next question is from the line of Deepak Gupta from Reliance Nippon Life Insurance. Please go ahead.
Hi. Good evening. Thank you for taking my question. Just wanted to understand on stage two asset quality, while it has improved quarter-over-quarter, it still remains on an elevated level. If you could give us some qualitative aspects on the stage two loans and how that will play out in the next few quarters. Thank you.
If you look at the, like we mentioned earlier, the asset quality, if you want to look at even at a total gross credit cost basis, we've seen improving trend. Okay? Quarter-on-quarter, you're seeing an improvement. The other thing that we said, a large part of our stress pool has been either written off or has run off. The big RBRE pool that we were talking about, and it just seems it was close to 9%, we are now sitting at just 2% of the book being of RBRE. Otherwise, also in terms of the distribution of stage two, even quarter-on-quarter, the total number has come down from 11.2% down to 9.4%. You have to look at it in terms of two or three metrics. Okay?
Overall, if you look at our asset growth from last quarter to this quarter, it's gone up by almost INR 3,000 crore, and majority of the increase is now sitting in stage one. Even stage two has dropped it. Incrementally, whatever business we are booking and the new NEA that we are building up is sitting in stage one. That's the reason why you see that the credit cost has started to come down, and this trend will continue.
Sure. I hear you. Thank you so much.
Thank you. The next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Yeah. Hi, good evening. Thanks for taking my question. Just, you know, extension to the question asked earlier on revolvers. Currently the revolver book is around 27%, whereas if I look at earlier, it used to be 3 percentage point-4 percentage point higher. Just wanted your thoughts around, and given that, you've been saying that incrementally the quality of the book is better, where do you see the revolvers trending over the next 1 year? And just as a, you know, as a rough cut sort of estimate, for every 1% increase in revolver rate, what is the net net impact on ROE over the years? I mean, you can take some historical sort of, maybe steady state pre-COVID years.
What was the contribution of that additional 1% at a net level on the ROE? If anything, you can qualitatively.
The first question related to whether the revolver percentage would go up. Like we stated earlier, 27% seems to be on the lower end now. In the last two quarters, if you see, this seems to have bottomed out because we were at 27% in September and now in December as well. As Girish stated, we actually saw a little bit of drop within the month in the quarter. In October, it actually went down a bit more, and then gradually started coming back from November and December. Both November, December were better, and finally we ended up at a 27%.
That did impact the yield that we had for the quarter, although there was a marginal drop, but there was a drop because of the drop in October month. As far as the impact on the ROA is concerned, you can calculate it. You take the total asset that we have, 1% of that minus the cost. That's the straight income that you have to the ROA side, barring some amount of losses that you'll have to bear because there is no extra expense. There are only two costs which comes. One is the cost and a little bit on the credit cost side.
Okay. Just to frame this a bit differently, if we reach you know the revolver rate pre-COVID, ceteris paribus, do you expect similar ROAs going ahead?
Similar ROA meaning, what we used to get in the past?
The pre-COVID-19.
Yes, yes. The pre-COVID ROA. Ceteris paribus, if the revolver rate goes to 30%-31%, which was the case earlier pre-COVID, can we expect similar ROAs pre-COVID?
I'll not give any specific number, but, like I said, see, in the ROA side, the moment the interest bearing asset goes up, the returns would definitely go much higher. You see, even right now you look at it, when we have a 27% revolver book, we've still delivered a 5% ROA. Now, this has an impact of credit cost of the previous period coming into it. If the credit cost itself was normalized and we still have a similar kind of returns, even at 27%, you'll find that our return would go up. By the same logic, if I'll add a little bit more of interest income, the ROA would go further up. That's where I'd like to leave it.
I wouldn't want to give any specific numbers on that.
Sure, sure. That's helpful. Just lastly, if you can squeeze in any reversal, interest reversals during the quarter? If yes, any quantum that you can disclose? Thanks.
Nothing as such, because, see, in the normal course, the way we do our Indian accounting, anything that we provide for to the extent the provision is made for 90-plus assets, we reverse the interest, and that's a consistent and standard accounting policy that we follow. If something has been provided 100%, we don't book any interest income for it.
Understood. Okay, that's it from my side. Thank you.
Thank you. Ladies and gentlemen, we will take the last question from the line of Rohan Mandora from Equirus. Please go ahead.
Thanks for the opportunity. I just wanted to get this understanding from you. In case we have made any representation to RBI with respect to the decision paper, and if yes, what was that? Secondly, if you could quantify the expenses on spends towards rewards and corporates.
Yeah, what was the first question? I mean, can you repeat?
In case, like what I understand is in the previous cycle of 2016 when RBI was contemplating a reduction on interchange and MDR on cards, or for the digital payments, there was some representation that was made by maybe the credit card issuers to the RBI. Has there been a similar representation being made this time to RBI? And if yes, if you could discuss what was the thought process that you've shared on the digital payments decision, perhaps?
Yeah, to this question on MDR, first of all, this is basically an announcement by RBI in the month of December as part of the monetary policy guidance.
Right.
Where they said they will be coming out with a discussion paper in a month's time. That is what the statement from RBI says.
Mm-hmm.
The discussion paper or the consultation paper is yet to be out. I mean, it's not released by RBI, at least as of yesterday. It's not very forthcoming.
Okay.
The moment they release.
Is there any-
Yeah, sorry.
Yeah, any input from our side, if it goes, will go after the decision paper is out. Would that be a fair way to look at it? Or is there something that we may provide before in terms of decision with RBI?
I think, see, they have not reached out. That is a fact.
Okay.
Nothing permanent. The moment the discussion paper is there, and then they, if they touch upon anything to do with the credit card, definitely that gives an opportunity for entire industry, including SBI Card, to represent the matter for a favorable consideration. That opportunity will always be there.
Sure, sure. Sir, if you can quantify the expenses towards spends-based items, OPEX, the component of OPEX towards spends?
Are you looking at the total spend base? I thought you were asking about the reward point cost.
No, no. Festive link spends and corporate link spends, in the past that we've given absolute quantification from share.
Corporate, suffice to say the net margin is very low. Quite a lot of the interchange that we earn, we pass it on. We don't see this as a very, very profitable business, but it is a positive return business and high return on asset business because there is no asset that is also built. That is what current model is because the T&E is yet to come back, so it is more of a utility payment, which is more of a passback. However, once the T&E comes back, the return improves and improves quite substantially.
Sure. On the festive spends, any quantification on that?
That's a difficult one to specifically because that's more of a proprietary information. We wouldn't like to comment on this to exactly how much we spend because this is very you know specific to us. Depending on the festive campaign and depending on the partner that we are doing, we do these you know necessary tweaks into our business model and to specifics. That one, we would like to refrain from answering right now.
Yeah, sir. No, sure, sir. Thanks a lot.
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Rao, MD and CEO of SBI Card for closing comments.
Yeah. Thank you, Faizal. I will sum it up in three, four points, like, Q3 FY 2022 witnessed a significant improvement in customer confidence and improved consumption levels. The effects reflect in powerful results that SBI Card delivered during the quarter and the nine months of this financial year. We remain optimistic that the overall on-ground situation will begin to stabilize over the next few months. The sooner we are out of this wave, the better it is for us, as we can then continue our journey back to the growth path that we had set for the economy before COVID-19 manifested itself. Meanwhile, as I said earlier, we'll continue to pursue sustainable growth while following healthy financial and corporate governance principles which form our core strength.
Before I conclude, I will urge each one of you to take all precautions to stay away from COVID-19 and stay safe. Once again, a very happy new year, and thank you all.
Thank you. 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.