SBI Card Sees Spike In Bad Loans On Covid-19 Impact

SBI Cards gross bad loans rise as Covid-19 impact worsens business conditions.

Vishwanath Nair @Vishwanath4389

02 Nov 2020, 04:04 PM IST

An employee prepares to tear off a receipt from a payment terminal at a supermarket in the Kurla area of Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

SBI Cards & Payment Services Ltd. on Thursday reported a sharp rise in bad loans for the July-September quarter due to defaults brought on by the Covid-19 crisis.

The credit card NBFC, a subsidiary of India’s largest lender State Bank of India, reported a gross non-performing asset ratio of 4.3% compared with 1.4% as on June 30, a rise of 290 basis points.

The rise in bad loans would have been sharper had a Supreme Court order not come in the way. In the Gajendra Sharma vs Union of India case, popularly known as the interest-on-interest case, the top court of the country had ordered lenders to not downgrade accounts to NPA category after Aug. 31.

Accounting for loans which would have been classified as NPAs without the Supreme Court order, SBI Card’s gross NPA ratio rose to 7.46% as on Sept. 30, 2020.

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While the Supreme Court order caused uncertainty in the way lenders could identify NPAs, it provided them with more time to invoke the Reserve Bank of India’s one-time restructuring scheme announced on Aug. 6, Ashwini Kumar Tewari, managing director and chief executive officer at SBI Card, told analysts during a conference call. “Would not say that we are on top of the moratorium problem.”

Most of the company’s asset quality stress, according to Tewari, is concentrated in the accounts that had availed moratorium between March and August. “These are accounts which belong to the self-employed borrowers, added through our open market customer acquisition. The customers added from our arrangement with SBI have actually performed better than the rest of the book,” Tewari said.

According to the investor presentation released by SBI Card, about 9% of the company’s loan book are under the Reserve Bank of India’s one time restructuring scheme announced on August 6.

This indicates that the ratio of stressed assets to total loans stands at over 16.5%.

As a result of the sharp jump in bad loans, SBI Card saw net profit decline 46% to Rs 206 crore at the end of the July-September quarter from Rs 381 crore a year ago.

Total income rose 5.76% to Rs 2513 crore. Total expenses were up 19% to Rs 2,234 crore.

A “management overlay provision” of Rs 268 crore in the second quarter, taking total provisions to Rs 758 crore as of September 2020. Impairment losses and bad debts expenses in the second quarter stood at Rs 862 crore in the quarter compared to Rs 329 crore a year ago.

The impact of Covid-19 remains uncertain and may be different from what we have estimated as of the date of approval of these condensed interim financial statements and the company will continue to closely monitor any material changes in future economic conditions.

SBI Card Release

According to SBI Card, credit card loans worth Rs 21 crore were converted to equated monthly installments at the end of the second quarter, under the RBI’s Aug. 6 one-time restructuring circular. The company holds 10% provisioning against these accounts.

Sourcing & Spends

Commenting on new credit card originations and spends during the quarter, SBI Card said there has been some improvement.

New account sourcing in September was at about 98% of pre-Covid levels.
Retail spends were at about 92% of pre-Covid levels.

“While there have been some improvements in economic activities in the current quarter, the continued slowdown has impacted new credit card originations, use of credit cards by customers and the efficiency in collection efforts,” SBI Card said in its statement to exchanges.

Watch The Interview With SBI Cards CEO Ashwini Kumar Tewari