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Ladies and gentlemen, good day and welcome to SBI Cards and Payment Services Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] 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.
Thank you, Ruthuja. Good evening, everyone. I extend a warm welcome to all of you. Thank you for attending today's earnings call of Q1 FY '23. Our immediate environment continues to be dynamic owing to geopolitical issues at its conflict level. Increase in energy prices have driven up inflation globally. In India, RBI has been taking relevant measures, including hiking interest rates to contain inflationary pressures. Amidst all this, according to industry experts, India stands at a better position currently in comparison to other economies in the world. RBI expects India's GDP growth to reach 7.2% in the current financial year. The consumer confidence showed continued recovery as per RBI's Consumer Confidence Survey. Credit card spends have also followed this suit, with monthly spends have scaled above INR 1 trillion consecutively. The credit card industry, which has shown consistent growth, despite changing economic environment is undergoing a positive shift with many conducive regulatory changes being introduced in the past few months. As per new RBI Master Direction, some changes have already imposed from first July 2022 and some have been deferred to 30th September. All the guidelines issued by RBI are progressive and [indiscernible] cardholder convenience and protection. At SBI Card, we are compliant with all the guidelines, which was supposed to be implemented on 1st July 2022. We have already sent the relevant communications to portfolio and active cardholders in line with the RBI guidelines through various channels. Whereas the percentage of the customers is low. Moreover, we expect a large percentage of the customers to be retained. With respect to the guideline on 30-day activation for new customer, the implementation deadline has been extended by 3 months, and hence the same will be rolled out by 1st October. Further, RBI has given multiple options for considering a customer to be active. Another change related to over leverage will come into effect from 1st October '22, which will also be based on customer choice. This change is similar to online transaction reaching activation. There is a possibility that initially customers may find it difficult to adopt to the change, but as is the case of online transactions, we expect that the change in [indiscernible] may stabilize over a period of time. Another change introduced by RBI is enabling RuPay credit card transaction on UPI. Discussions are going on with various stakeholders in this aspect. We are working on technology integration, while NPCI is in discussion with all the stakeholders on MDR. This is expected to be resolved shortly. As the industry evolves and grows, SBI Card continues to be one of the significant contributors to the growth. Let's now look at SBI Card business overview in Q1.We were able to deliver a healthy business growth, with strong financial performance during the quarter. Before I proceed with the details of the business performances further, I would like to share 2 key recent honors with you that we have received as an organization. I'm happy to share that SBI Card has been certified as Great Place to Work for March 2022, '23, a key milestone for us because our employees are our most valuable asset. It is also a testament to our efforts in creating a friendly work culture focused on integrity, respect, transparency and trust, which is conducive to the growth of our employees as well as the company. As a brand, we continue to be recognized in the industry for our initiatives and efforts. We have recently been recognized as Best BFSI Brand 2022 by the Economic Times for the third consecutive year. As you can see, we entered this fiscal year on a positive note and the same is reflected in our business indicators for the quarter as well. In Q1, we achieved the milestone of 14 million cards in force that contribute 18.4% of the market share in the industry. This milestone is an indicative of our consistent growth trajectory. This quarter, we sourced over 900,000 new accounts, which is a tad lower than 1 million mark, which we recorded in the previous quarter. However, the small drop in the last quarter is due to [indiscernible]. We have already started working on fresh set of leads in Banca, and the July numbers are much stronger. Our overall spend continue to see a healthy growth and has grown with 79% year-on-year, standing at INR 59,671 crores in Q1 versus INR 33,260 crores in Q1 FY '22. Our spends market share as per the information available in the public domain as of May is 18.6%. Retail spend stood at INR 45,488 crores versus INR 27,098 crores in Q1 FY '22, an increase of 68% year-on-year. Online spends continue to grow consistently and now contribute to over 55% share in overall spends. Noticeably, it's heartening to see the key spend categories have crossed the pre-COVID levels, including travel and entertainment category. While categories like department stores, utilities, education, consumer durables, furnishing have seen a steady growth of 7%, travel and entertainment category has seen a growth of 31% in total spends in Q1 FY '23, as well as Q4 FY '22. Corporate spends are at INR 14,183 crores as compared to INR 6,162 crores in Q1 FY '22. However, in the month of June '22, we have reviewed and reduced some B2B spends on special low margin [ forfeit ] accounts. This is in line with our continued focus on sustainable and viable growth. Most importantly, our spends per average card has seen a significant growth. It has risen to INR 1.7 lakhs in Q1 FY '23 from INR 1.1 lakhs in Q1 FY '22. This is a good indicator of customers growing preference for SBI Card as a debit option. It has been driven by various attractive and the relevant discount offers and initiatives that we have offered to our customers. Our revenue streams remain healthy and diversified. The revolver mix has grown to 26% in the current quarter from 25% as of March '22. EMI mix has also grown to 35% as compared to 34% in the previous quarter. To further improve our revolver mix, we have been re-calibrating our risk appetite. During the quarter, we continue to augment our product offerings to our customers and expanded our co-branded portfolio with the launch of Aditya Birla SBI Card, one of the most rewarding lifestyle credit card in partnership with Aditya Birla Finance. Please allow me to take you through the financial performance in Q1 FY '23. All the positive business indicators supported our financial performance. Our resilient business model embedded on strong fundamental has helped us deliver healthy financial growth. During Q1 FY '23, our revenue performance continued to be led by healthy interest income and strong fee growth. The company has achieved a PAT of INR 627 crores in Q1 FY '23, a growth of 106% year-on-year and 8% quarter-on-growth. In Q1 FY '23, receivables stood at INR 33,215 crores with a growth of 36% year-on-year. Our total revenue stood at INR 3,263 crores and has grown at 33% year-on-year during the quarter. In spite of a 25 basis points increase in cost of funds, our NIM remains constant as the interest income fees softened too. In the rising rate scenario, we are hopeful that the impact of the same may be partially mitigated by increasing the share of interest standing assets. On asset quality, our credit cost percentage has considerably declined to 5.6% from 10.4% a year ago. And the net credit cost percentage has also declined to 3.8% from 9% in Q1 FY '22. Our GNPA has come down to 2.24% as compared to 3.91% at Q1 FY '22 and 2.22% as of March '22. Net NPA for the period is at 0.79% as compared 0.88% as at Q1 FY '22 at 0.78% last quarter. Return on average asset for the quarter is at 7%, which is higher by 247 basis points as compared to 4.5% for June 2022 -- 2021. Return on average equity was at 30.8%, which is higher by 1,217 basis points as compared to 18.7% for Q1 FY '22. Our liquidity position continues to be strong and capital adequacy is robust at 24.7% for the period ended June '22. In conclusion, as mentioned earlier, prevailing external environment poses some challenges. However, thanks to the domestic consumption story, India is seen as a strong contender to be the world's fastest growing economy over the next few years. India's digital economy is going to play an important role in the growth, and it is expected to reach around $800 billion by 2030. Notably, digital payments in India are expected to reach $10 trillion in value by 2026 from around $3 trillion now. This presents a strong potential of growth for credit cards industry. As we continue with our preparations to make most of these opportunities, we remain vigilant in the current situation. I would like to reiterate that at SBI Cards, we have built a robust, reliable and a resilient business and we are committed towards delivering value to our shareholders, employees and customers. Ruthuja, now we are open to questions.
[Operator Instructions] The first question is from the line of Anuj Singla from Bank of America.
The first question is with regards to the sourcing mix on the new accounts. So -- we have seen a very dominant presence of [ over ] market. I think you did talk about some issues on the banking side as well as some, I think, re-calibration of risk appetite. Can you please elaborate on that? Are we going slow on Project Shikhar? And secondly, what does it imply for the credit cost going forward?
Yes. The share of Banca has come down in the month of June quarter. Generally, also the Banca's contribution, particularly in the month of April when it's a busy audit period for the branches, SBI branches, which actually play a critical role in terms of sourcing, they are pre-occupied with audits. So the month of April is always like a -- contribution is slow. But as you know that the Shikhar version works on -- I mean at certain intervals, we get the data, we need like the branches dashboards are operated with the data. In one cycle, there was a delay, which has actually resulted in slight slowdown in terms of sourcing. But we also clarified -- I mean the position got rectified in the month of July. So now, we are seeing user validate -- user contribution from Banca channel. So, as a strategy, there is no change. We continue to look for a 50%, 50% contribution from both Banca as well as open market. Rather when we were faced with a situation of slightly delayed or a kind of lower contribution from Banca, we were able to ramp up the open market channel, which shows our resilient in terms of maintaining a monthly target of 300,000, which we always advocated for. So, there is no recalibration of risks as such. It is only like a tactical move, and the quarter 2 will reflect most probably the same contribution mix as we always envisaged.
Okay. Got it, sir.
And would you like to comment on the credit performance?
Yes. And second question is regarding the cost of funding. Obviously, we have started the impact, started -- it has started to flow through in our P&L. So when we look at for the next 3 quarters, what kind of cost increase we should we be factoring in?
I think -- see, it all depends upon, as you know, like a 60%, 65% of borrowing is short-term. And here also when we call it short term, we have a different frequency at which they get [ weightage ]. But our understanding, our estimation says like the bulk of the impact will come in Q2. And unless and until, again, the external benchmarks or a repo rate changes, there may not be further impact with the same degree in the subsequent quarters. So, we feel like the Q2 will reflect the full impact of increasing the cost of funds. But at the same time, you would have seen the shift in the composition of assets where we are consciously increasing the share of EMI loans, which has been steadily increasing. Revolver has also started responding, albeit at a very small base. We are hoping that the share of interest standing net assets will continue to increase, and it will help us actually to kind of take care of or mitigate whatever the negative impact is there on account of increase in the cost of funds.
Okay. Got it, sir. Any quantifications for second quarter, what kind of increase we can build in?
So Anuj, that will be -- I think the full pricing impact will come in. It will be range bound between 5.6 to 5.8, that's...
The next question is from the line of Dhaval from DSP.
Congratulations on good set of numbers. I had 3 questions. First, was relating to the net card additions. So, we talked about your aspiration to have 3 lakh net monthly card additions. I just wanted to understand, when do you see this sort of run rate being sustained -- achieving and sustaining? Any color that you can provide? Are we 2, 3 quarters away? Or any color around that would be useful. The second question is relating to a revolver share. So, we've seen an increase this quarter. Just wanted to understand, so in terms of the sort of bottoming out of revolve share, is that behind us? And gradually given our incremental sourcing moving towards a potentially higher category of revolver customer base, do you see it gradually increasing quarter-after-quarter. So, just some color around your confidence on this upward shift that we've seen in the quarter. And last question is relating to spend base fee. So, we've seen the T&E sort of spend come back. I was hoping the spend base fee as a percentage of the spend also start to move up. They've been around 1.4% level pre-COVID. We used to be about approximately 1.6% level. If you could give us some perspective around, is it the new normal? Or we should see that increasing and what could drive that? Yes. Those were 3 questions.
Yes. As I said earlier, our initial idea was, let's say, a gross card issuance of minimum INR 300,000 per month. That was always there. And then gradually increasing it, which is the kind of risk appetite what we have and the competency and the capacity of the channels. And our intent was evident till the last quarter where we ramped up the gross card issuance where it crossed 1 million. So that effort will continue, despite whatever small hit we have seen in the June quarter. So the effort on increasing the gross card issuance will be aided by the continuing expansion of the partnerships and even the new digital channel what we have launched. End-to-end, the digital channels are sourcing NPT. This will also help. Of course, network is also a function of attrition. So attrition, I think, we are taking lot of strategies in terms of our present attrition. I think, month of July or August, a couple of months, because the [indiscernible] is coming into effect. That can actually have some impact on the attrition. But I think once this impact is absorbed, then definitely it will be like a -- again the net growth will be on a growth trajectory. Net growth in the quarter will be definitely increasing. And the 300,000 net growth is continuing to be an aspiration. Definitely, it will be there and we are sure like a -- after a quarter, we will be in a better position to reach that number. With regard to revolver, Girish, can you?
So with respect to revolver, we have seen not only an increase in the asset, but this asset has also come on account of number of customers. So fundamentals look to be in place from a percentage of assets on the revolve portfolio. So, we get that confidence that they are going to sustain in that sense. The other good part is that, we continue to see an increase on the term book, which is now up 35% of the overall assets. So if you look at, actually, in the last quarter, the interest-bearing asset has moved by 2 percentage points up to almost 61%. So while we continue to get more interest-bearing asset on our part and also focus on the quality of customers that we are getting in, so that our future revolve book is built accordingly. So both the things are working in tandem. So, you can see that from both the data points. So that was on the revolve share. On the spend base fees, you are right. While it will not go back to the original number because during the COVID period, a whole lot of new category of spends has got added, which is in terms of either utilities or insurance payments, fuel has increased. So, some of those categories are at a lower interchange. However, from the point where we are, we are seeing the increase in travel. In fact, in our investor presentation this time, we have presented that the travel has also crossed the pre-COVID numbers, both travel, lodging, entertainment. All those categories in Q1 have crossed that and they continue to show very good growth. So, we should see an upward trend from where we are, maybe not at the original number of COVID, but somewhere in between, it will -- it should land.
The next question is from the line of Abhishek Murarka from HSBC.
Congratulations for the quarter. So a few questions. One, in your opening remarks, you said that you have re-calibrated some risk metrics to get more interest earning asset. Can you just give some examples of what exactly you have done? That's question one. Question 2 is on this co-branding with Aditya Birla Finance. Can you just share some details in terms of how it will work with respect to data sharing and what are the commercials of the tie up? And how do you expect this to scale up in the next 2 quarters to 3 quarters in terms of, let's say, card issuances or whatever? And finally, on commercial spend, you said you ran down some B2B accounts. What does this mean? Is it a product that you are finding pressure on in terms of the profitability or is it a group of corporates, which is not remunerative? Can you please explain that? Those were my questions.
So on the first point, in terms of re-calibration, I think that's something we've been saying now for the last 2 quarters or 3 quarters. As our overall credit cost have started coming down, the principles we've been following is to try and optimize our credit cost. So even on an ongoing basis, we are constantly looking at segments where we believe we can re-calibrate the risk appetite. And that has been happening now for the last 2 quarters or 3 quarters. And you would see that even in terms of the number of self-employees has gone up in recent quarters. So, this is an ongoing exercise. It's nothing specifically that we've done in this quarter. See, a lot of these actions do start to bring in that kind of customers who have a higher propensity to revolve. That's all. I don't think you can scale the risk appetite and start getting in more revolver. It's not that simple an arithmetic.
Right, right. Okay. But in your estimation, is there like a lead time or what do you expect maybe 2 quarters, 3 quarters and it could translate into some more revolve?
So, see, really it's a question of what are the actions that we can take and there are 2 or 3 sets of actions that we've been taking. We have obviously re-worked our risk appetite to start bringing in more self-employed second tiered salaried customers. We've also tried to bring in some of the thin file customers with additional data because we now have rebuilt our models, we have access to alternate data. So, we are bringing some of those customers also. And there is a lot of other activity that is happening on the marketing side to induce spend, try and get more of the discretionary spends and things like that. But it's a set of actions. We have to wait and see how that pans out.
On the Aditya Birla Group, we tied up with them and the model that we are going to use there is also a regulated entity. So, we have done a very detailed BRE exercise with them. We have already qualified and selected certain set of customers where we can give the card without taking any documents. We are intending to use our newly launched straight-through processing SBI Card that you would have seen, that journey for these set of customers so that we are able to give the offer to these customers and be able to get this customer. And in this case, it should be easier for us because Aditya Birla Group being a regulated entity, we don't need to collect another KYC of these customers. So, we are working at seeing whether in certain cases where we collect the KYC or where we would not, so that make even life simpler for the customer. So, that's the model that we are going to use with Aditya Group.
And what is the profile of these customers?
They are basically asset customers of Aditya Birla Finance, which would have taken either a set of various kinds of loans being offered by the Aditya Birla Financial Services and capital. On the commercial space that you asked, it is not a specific product. On the commercial card, there are some corporate who do B2B spends or vendor payments spends or some kind of statutory payments. Now in some of these cases because some of these spends go through various aggregators. And if the costing is changing or the pricing moves in a direction where it becomes non-profitable, so on review of certain -- some of these cases and some of the spends, we saw that some of that spend was not in line with our expectations. So, we have -- for the time we have curtailed some of that, and reduced some of that because we not only -- it's not only about the top line, we also intend to be looking at the profitability from these...
The next question is from the line of Bhavik Dave from Nippon India.
Congratulations on a good set of numbers. Sir, couple of questions. One is, you mentioned that the term loan book proportion is increasing. Just wanted to understand what is the average tenure of this book at this point in time?
There are actually 3 portions of that. One is a kind of almost a loan, which is given on top of the credit card limit. There the term is almost 33 months to 34 months. On the spend, which is converted into term product, there it is almost close to 8.5 months, 9 months.
And what would be the broad proportion if you're comfortable with 35%? How many -- how much of it would be more than like couple of years or 30 months?
So you can go through our ALM, and have a look at that because there we declared that more than 12 months, I think is there. But otherwise, we have not declared these specific numbers.
Perfect. All right. No problem. And sir, secondly, and I see that you've come up with that Sprint offering. And I think I am assuming that this is the end-to-end digital origination that we were planning and we started some bit for the Banca customers, and now I think this is more for the open market. I just wanted to understand what -- how exactly has the Banca experience been? And how do you think that this can help us, again, make it more -- the on-boarding journey more efficient and cost effective. So anything on that, that you would like to highlight?
So, you are spot on and this is Pradeep answering on behalf of SBI Cards. So basically, this new journey is a launch for the open-market space. As you are aware that for our digital sourcing with respect to State Bank, we already have an existing integration on similar lines in the YONO app. Now through the YONO app, accounts have already been coming for a while. And there the whole architecture is designed in a way that once the customer consents, data is automatically integrated into our system, so data gets picked up automatically, gets passed over to us. There is, however, a KYC leg that currently we do even for the Banca customers, so that gets done on our side. But by and large, the digital route for those customers already existed. So that's on the integration with Banca. What we are going to do now is, since here we have integrated this whole app and launched it for the open-market space, this new app gives us a lot more capability. So the first and the foremost is that the user experience seen here is completely seamless. KYC is completely digital. What we've also done is the decisioning on the account is real-time, as well as all the checks and balances in terms of photo match, which is done using artificial intelligence. We also do our fraud checks, also completely online. And net-net in approximately 4 minutes to 5 minutes in one single journey, the customer can get a card online. So numbers have started coming in on this new app. And some of the features here, which we are in an early stage on the open-market side, we will also bring on to the YONO platform. So that's a separate effort once the success is proven in the open-market space, some of these features that we like will also get rolled out on the YONO side. So in a nutshell, what I want to say is that the path for our company moving forward is going to be digital centric. The new account acquisition strategy is going to have a digital-first approach. And this digital-first approach we will adopt both on the Banca side as well as on the open-market side.
Sure, sir. And sir, last question is on the sourcing bit and I see that Tier 3, Tier 4, Tier 3 and above or Tier 3 and Tier 4 cities incrementally is adding to almost 50% of our incremental sourcing, which used to be 25, 30 odd percent. Anything that we seeing here? Are the customers better? And as we've discussed, we see on the type of spends that they do and the kind of revolve that they can generate, but is there enough or is there lesser competition in that market? And is that -- we have a more right to win kind of A proposition with these customer considering the familiarity with the brand or how does it work? And what would be the economic, like in the sense, the cost of acquisition would be similar or will it be lower for a Tier 3, Tier 4 kind of customer? That's it.
So 3 things, 4 things, we will tell you on Tier 3, Tier 4. Yes, the cost of acquisition is lower because primarily, we are sourcing through Banca channel in Tier 3, Tier 4, where the cost of acquisition we have earlier also stated is lower. The second point is that, in those cities, State Bank of India brand is SBI Card brand because SBI is another brand. SBI brand is very strong. So the brand attractiveness and the pull factor is very, very strong. On the consumer behavior side, what we continue to see is that the online percentage, even though the spend is slightly lower than Tier 1 cities, but the online percentage because of delivery of the large e-commerce players in the country is now easily there, in almost all pin codes, we see this 55% is almost similar in Tier 3, Tier 4. So that behavior is being seen. And the spends are at the point of sale because the availability of point of sale as it increases in Tier 3, Tier 4, we believe that, that should also help increase the spends further. So that is some color on the Tier 3, Tier 4. The spend categories are usually the same. There is a bit of a difference in terms of travel and lodging, where the travel spends are slightly lower compared to Tier 1 cities or so. But if you talk about primarily utilities, your fuel and other non-discretionary spend, it is broadly missing.
And their average spends would be what? Monthly spends would be like half of a Tier 1, Tier 2 or like any proportion or any number that you would want to talk about? Like reasonably seasoned customer is spending X in urban or Tier 1, Tier 2, would be spending at least 40%, 50% of him or lower?
We have not given the exact break up. But it is, what I would say anywhere between 60% to 90% of the -- depending on the city.
All right. I'm sorry, sir. Last question is, the yields on the loan book or the EMI conversion book would be around 16%, 17% or maybe lower?
We have not declared the yield number terms from brokerage debt?
Okay, sir. No problem.
As we calculate the portfolio yield overall, the transactor revolver, I mean, overall portfolio...
Actually you can -- sorry, sir, you can calculate it because you have the full base and we have given the transactor revolver and EMI break up, the revolver is at the product rate of 3.5% per month. So the balance you can calculate.
[Operator Instructions] The next question is from the line of Param Subramanian from Macquarie.
Sir, my question is on incremental card volume market share. So if I'm looking at card volume market share, it's down about 100 basis points over the last 10 months odd. Is this something you're concerned about and could this translate the spend going forward? Or do you think this is more a low value spend card being added by the [indiscernible].
One thing is the gross card issuance of the industry has increased over a period of time. So obviously that has an effect. But should [indiscernible] what others are doing, we always maintained a stance of getting a sustainable growth and looking at our internal risk appetite and capabilities, capacity of the channels. But I think the kind of numbers what we said when responding to other questions around what is the net growth target we are aiming for, I think that should help us actually in terms of arresting this decline and actually start gaining the share.
This will be -- it's a very temporary kind of situation, but we have plans to ramp up both the gross card issuance and address attrition also in a meaningful way because our attrition will be definitely slightly higher than the industry because we issue only large chip-based cards as compared to competition. So that factor is always there. But that also helped us in having a better active rates in the portfolio also, portfolio of cards. So, we will take all these things into account. But we will strike a balance between the market share gain, which is, I mean, ensuring a sustainable growth.
Got it, sir. Sir, if I could ask, again related to that question, is there an aspiration to be the number one player on a volume basis for SBI Cards? So, you obviously have the parentage, the brand, the bank's customer base. What is holding back SBI Card from being the number one volume card issuer in the country?
So as I said, we have a strategy and we are aiming for, I mean, in improving the market share. So, that's pretty much there. Definitely, the kind of sourcing what happened from the Banca, we also revisit and always look for opportunities of maximizing it. But we are also mindful here. New master direction puts a lot of responsibility on finding the right customer because there are many forces there, otherwise there is kind of miscommunication to the customers that may not result in any activation of the card, which anyway will have to be activated after 30 days. So, we look at the profile and we need to do the targeting the customer in the right way. So definitely increasing the market share is on the cards and we'll do it in a calibrated way.
The next question is from the line of Nitin Aggarwal from Motilal Oswal.
And congrats on good set of results. Sir, 2 questions. Firstly, again around the borrowing cost and margins. So in respect to that, besides the mix of like revolver and EMI customers which has increased this quarter, how much flexibility do we have to increase the interest rate for our customers, mainly the EMI customers so as to protect our margins?
I think, as you know, the kind of EMI loans are all fixed rate loans, to the extent there is a healthy disbursement, so it gives us an opportunity for each disbursal to price it appropriately. Of course, we will look at our cost of funds, and we look at what is the ideal risk-based pricing. And of course, we also look at what are the options from the competition. But it offers an opportunity for each new disbursal to pass on some increase to the extend market also. Of course, the other efforts will be to increase the share of interest-bearing overall while ensuring that the revolver doesn't reduce from the current level. That will also help us in terms of increasing the portfolio.
Okay. And sir, secondly, like on the subscription base fee, if I look at the, on a per card basis, this is trending downwards, though not any major decline, but for last 2 years also there is a down trending that is there on the subscription base fee. So how do you really see this playing out in the medium term, and any new products that we are looking to launch to counter this trend?
So subscription base fee is primarily our membership fee. And that is linked to the new accounts which we are sourcing. And on a per card basis, it will be stable.
Hello? Sorry, sir. I missed your -- sorry, can you repeat that, please?
I think subscription base fee only includes our membership fees. And on per card basis, it will be stable.
Okay. Maybe I, sir, see a small decline, single-digit though, but it's been around like, if I look at Y-o-Y, it's a 4% decline and in prior year very marginal decline is there. So, is it to do with the mix where you are originating more from that Tier 2, Tier 3 cities?
So that's linked to -- there are spend base reversals as well. Our customers, as they touch their spend base limit, they don't get to pay the fees. So the spend base reversal percentages of that is going up. As the customer profile improves, the membership fee on the renewal side will start coming now. So that's what impacted this.
The next question is from the line of Pankaj Agarwal from AMBIT Capital.
Sir, do you think RBI allowing credit card on UPI will benefit the industry?
So RBI has allowed RuPay card -- RuPay credit cards to be used on UPI. As of now, if we look at it, we have almost more than a million plus cards already on a RuPay platform. And we are one of the largest issuers of RuPay cards in the industry. So, we believe that there are 3, 4 benefits, which are very clearly there. One is the whole exception fees of credit card into the C2A space for RuPay -- for UPI merchant, that should increase. As these are the merchants where if the acceptance happens, we would get incremental spend from the same customer. So one can get more share of spending, which the customer today is doing on UPI can shift on credit card for -- specifically for rewards, because rewards and other value proposition benefits are there. Market penetration increases. We also -- as was being mentioned earlier, in Tier 3, Tier 4 cities, UPI is already very well penetrated. And in those cities, we are very strong, and we are issuing RuPay cards there. So there the customer starts to start using -- we get to -- we should be able to see increased spending patterns there. And also, in any case, if the customer has one payment mechanism and he uses it for all the areas to make the payment, it increases loyalty also. So, we believe that these are the 3, 4 areas where the benefit is there. There is obviously a discussion around what would be the commercials, what would be the interchange in India which would be there. So that discussion -- SBI is already having that discussion with all the member banks. And you would have read the interviews also of NPCI's CEO and MD. So, they are already in discussion. And we believe that something, which is right should happen in due course.
Sorry to interrupt. Mr. Agarwal, there is a lot of background disturbance, which is coming from your line. May I request you to mute yourself when management is answering your question.
Am I audible?
Yes, sir. You are. Please go ahead.
Sir, there was, I think somewhere it was mentioned that on small value transactions, there might not be any kind of MDR. So in that context, do you think that there could be some cannibalization where merchants shift some of the credit card transactions to UPI. You know India is a jugaad country, right, where merchants can play that game.
So, you are right. And I think these are the topics of conversation, which are actually precisely happening with NPCI that how the mechanism has to be done. If there are benefits which has to be given to the merchant for certain categories which are smaller merchants, how will that be monitored, what will be the control mechanism, to what level, what ticket size that transaction should be allowed for. So, there are these questions which are there. And I think that is what NPCI and other banks are discussing before they come to the final conclusion.
Okay, sir. Sir, one last question. In the last cycle, your cost of funds had gone to up to 8%, 9%, I think somewhere between 8% to 9%. Do you think it can go back to those levels or structurally your liability mix has changed so that it will remain around on the current rate?
Difficult to predict the trajectory of interest rate. Well, as of now there is upward bias definitely because of inflationary pressures. But over a period of time what we have done is, we would have seen like share of long-term [indiscernible] there, with a focus where we have been increasing the share, the share of long-term. So, we have been looking for opportunities to lock into long-term at the right rate. So this journey will continue, even though it is slightly costly as compared to short-term. So, this will help. And of course, to the extent, even if there is an increase in the cost of funds to the extent we're able to increase the share of overall interest bearing yield and to the extend the revolver helps, I think that can act as a mitigant.
[Operator Instructions] The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.
And congrats on the quarter. My question again is on this UPI on credit card, for which the negotiation is still underway by NPCI. I'm just trying to get a sense. Maybe this is a bit of a theoretical question. How much of the unit economics actually hinges on the MDR? Is that something which the industry is quite particular on? Or to ask it in another way, if the MDR were to be lower, would you still go ahead with the product and tinker other cost elements to keep the unit economics the same? Or do you still feel that you need a certain degree of MDR for the product to be successful?
So you need MDR. And there are 3 reasons for it. The first reason for it is, credit card is up to 52 days of credit free period, okay? So there is a cost of funds, which is -- and the customer spend on an average, there is a cost of fund, which as an issuer we incur, okay? The second thing is a customer uses credit card also because of the rewards and the benefits and the value proposition, which the customer gets. So, there is a cost of value proposition and then there is a cost of rewards also. Now you can tinker with, if there is a high premium end of it, where we get higher interchange, then you can give higher rewards to those customers. At a lower end, you can give lower rewards and you can tinker with that. But not having rewards at all and having a just a base payment product will not encourage the customers to have either royalty or spend large ticket items on the product, okay? So that's the second piece, which is critical. Thirdly, obviously, it is a credit product, so there is a -- while the credit loss, you can still look at in terms of from the interest income and other things, but there is a set of card loss which happens, which we -- which is borne at the initial stages even though that is very low because of the RBI guidelines of second-factor authentication and generally a very secure environment of chip and pin. So it's very low, but there are those costs, which are different in credit card compared to any other simple payment product where the money is going from your bank account.
Got it. Sir, just one clarification to the point that you made earlier to a question on incremental market share, which has actually slipped quite a bit. What do you think will take for SBI Cards to possibly reach a 400,000 or a 500,000 card issuance per month? Do you think it's the technology back-end which you still need to strengthen in terms of capacity? Or do you just think it is underwriting appetite, which will improve as the economy actually improves because the inherent demand seems to be very high?
I think it's a combination of everything, and we have been making efforts. Of course, there are declining credit costs, which we have demonstrated over a period of time, definitely gives us a maneuverability to experiment more with some pilots, to which we have been doing. We also talked about having the ability to consume alternate data for underwriting the NTC and NTPC customers, so definitely that is helping. And of course, technology wise, we've said like a, the journey is already there. This is only for the organic inflow. These platform has to be extended now to the entire partner ecosystem. So, that will also help us in terms of ramping up the numbers. But it is, at the same time, at a reduced cost as compared to the current business model. So it was a conscious move. I mean, technically, you can even get those numbers even in the current business model, but the cost of acquisition will be higher and the incremental returns maybe less. So, that is the reason we are making calculated moves.
The next question is from the line of Rahul Jain from Goldman Sachs.
Just to start with, first, on the spends per card in retail, which we understand is about INR 30,000 per annum, which seems to be the highest that we've seen. Just wanted to understand, I mean, where can these spends go from here, particularly in context of the income that your customer would be earning? So that's question number one. Question number 2 is, again, going back to the market share point. If the market share is incrementally coming under pressure, then what levers do we have to keep increasing in the spends? If in case, the spends per card starts to kind of flat you out. So, those 2 were questions around just to understand the movement forward in terms of the spends market share.
So, you are right. On the -- first of all, on the spend per customer, okay? Now we've been stating that the spend per card or spend per customer have actually been increasing over a period of time. So during COVID, it went down because certain categories were not available. But we had stated at that time also that those categories have come back and the new categories, the existing categories like travel, lodging, hotels, they were bound to come back at some stage when the normalization happened, which they have come back., So we are seeing the increased spends which is happening. The second things is this digitization process is actually picking up further. You see more and more new categories coming up into the fore. There are school and education as a category. It's fairly decent now. Rentals which was not there, let's say, a year or year and a half back is a fairly large category now. Utility bills, otherwise, insurance payments. So, you will have deeper penetration because when these categories come, the first thing, not everybody picks up those. So out of 14 million customers that we have, not everybody is spending on all the categories. So, we keep increasing the depth of category within our customer base to get the spend increase. So, there is a -- this is a standard, segmented offer, campaigns, that we continue to do to get that fees. On your question on market share, you're absolutely right. If the market share on cards does not increase over a period of time, it will put pressure on the market share on spends also because both of them typically are in tandem. And overall spend share will work on number of cards and the spend per card, it's a standard mathematical formula. So, the first step here is to get the market share on the cards piece to increase. And that is what we are working on. And as was stated by our MD sir that while we are working on a calibrated fashion, but the numbers, we now have a straight-through processing, which we have launched for our open market. We are also trying to link it to our Banca sourcing, so that we are able to get benefits there. This should be completely incremental. New programs is completely incremental, which is going to come. And in the existing piece, we are working at lot of productivity increased measures and efficiency increased measures, so that we are able to, at a lower cost, or at least keeping the cost same, get the productivity up and be able to source more number of cards. So, those things are in progress and we are seeing some very good results. And we have seen very good results in the month of June and we believe that those should continue further growth over a period of time. And this growth of market share should come back to us. So that's on the card piece. While on the spend piece of it, there will be -- there is a corporate card fees, which we have always talked about. We want to be very careful with that when we go there because there are those 2 portions there. Retail has been running strong. We want to continue to keep the corporate card also in the play, but still at a profitable and at least at a marginal profitability level should be maintained. So, these are the 2 portions that -- on which the work is happening.
That was very helpful. Just to follow on, one is, in terms of the spends, when we look at these spends vis-a-vis the income that your customer, the vendor would be earning, what would that be? Any sense can we get? What would be the average annual income of your typical customer who is spending 130,000?
Okay. So not -- connecting everything to income here does not work, okay, because income is important. So for example, in Tier 1 cities, it's actually the consumption spending pattern, which is more critical. So when we look at the customer database or when we look at some of the customer profiles, credit limit which is being set is basis some bit of income estimation and increase or decrease basis, the income estimation done by the credit team. So spends in various categories, so for example, everybody today spends on fuel, okay, whether it is a -- especially if they have a credit card, they would spend on fuel, whether it's a 2-wheeler or a 4-wheeler or otherwise. The quantum will be different. So, you approach it from a spend category perspective. And as we have earlier seen, we look at from a non-discretionary and discretionary. So, people -- non-discretionary spend people will do. People will go to departmental stores and buy the regular groceries, whether they buy it from the card or cash is a choice which they have. So, we have still not reached that level, that the monthly income -- the spends is crossing the monthly income by a large margin. Those things have not happened with us.
The next question is from the line of Aadi Jain from Ampersand Capital.
Congrats on a good quarter. I just had 2 questions. So the first one was actually NIM. I've noticed that our NIMs have fallen from around [ 15% ].
Sorry to interrupt you, Mr. Jain. We cannot hear you clearly.
Hello? Am I audible now?
Yes.
Yes. I just had a question on the NIMs. So, I noticed that our net interest margin has fallen from 15%,16% pre-COVID to currently 13%. So I just wanted to know, what could be the reason for that? One thing I noticed was that our revolver share has fallen. So is there any particular change in consumption pattern or customer behavior towards revolvers? Are you noticing any of that and what could be a sustainable NIM range for the medium term?
You are right. I mean the decline in NIM is mainly attributable to the lower share of revolver. But the way to look at is, how we have been managing the costs overall, given when the revolver is at 25%, 26%, still we're able to generate a return metrics of -- return on average [indiscernible] and ROE of 30%. So, I think that revolver to consumption [indiscernible]. Of course, there will be some tendency like when they're buying a consumer durable item or otherwise make a big ticket purchase like a travel, et cetera, I think there is a better propensity to revolve. But barring those categories, consumption is difficult, I mean, revolver is mostly with the ability to pay in full. If it is not paid, then obviously, they will chose an option of like a short-term kind of cash flow mismatch, they will seem like a -- in a month or 2, they will roll over and they will pay. Or if they are comfortable paying over a period of time, they will opt for EMI kind of loan.
The next question is from the line of Deepak Sonawane from Haitong Securities.
Congratulations on a great set of numbers. So just wanted to understand profitability. I mean, if we compare our online spend versus offline, that is spends at POS and if we compare the profitability in terms of, let's say, net profit per spend, on blended basis, we are reporting around 0.8% to 0.9%, right? And if you can split that profitability base between the online spend and offline, can you give us color on this?
Okay. So profitability from the category of spends does not vary. It is dependent more on category of customer that we are getting. So, premium customers and high spenders are more profitable. On MDR fronts, because whatever interest rates that we get, whether it is online or offline, it actually depends on the kind of spends. So if travel, if you do, whether you buy it from a point of sale or you buy it from online, one of the players, we get the same interchange. So, there the variation is not there. So from an income stream perspective, there is no difference. The profitability is actually more customer dependent rather than the online, offline.
The next question is from the line of M.B. Mahesh from Kotak Securities.
Just 2 questions. One, how much of your -- is there -- how much of your incremental cards or outstanding card would be on the basis of a secured credit card in the sense it's backed by a fixed deposits or any other lean instruments?
We don't have the numbers. But it will be insignificant. It will be very small.
In the sense that we have seen some competition kind of introducing, this being a very good source of getting into customer segments, which are tougher to crack from an income segment, what is your sense of this as a product?
So, we did this product for 2 years, 3 years. The attrition rates are very high. So within the first year, because customer is, as it is marginal, and his needs for breaking the FD can happen at any point of time between 3 months to 9 months. So, we saw a whole lot of them wanting to break their FD after 6 months to 9 months. So the life of the customer with the product was not very long. And hence, automatically the profitability gets impacted, majorly because you've incurred a good acquisition cost upfront. And if a customer does not stay longer with you, then the opportunity to have revenue from that customer is limited.
Perfect. And second question, sir, this is to Aparna ma'am. Ma'am, this INR 450 crores of provisions that you're doing there, this still continues to remain of customer base, which are, let's say, pre-COVID or these are business as usual kind of a credit cost that we have hit now of the incremental spends that is coming in?
So now the credit cost is [ being largely ] and if you look at our ECL rates that we've given out, it's at 3.3%, which is actually lower than the pre-COVID rate. So a lot of the -- the RBI RE book is almost finished. We have got INR 150-odd crores book of that left. There is just INR 51 crores of discretionary reserves, so whatever you now see is fee.
In a sense, these are customers who have originated, let's say, pre-COVID, or these are, let's say, customers who are still coming out of the incremental book that you originated? I'm just kind of going in that direction of the question.
So, I don't think it's a question of whether it has been post, pre COVID. This is the standard expected credit loss model that we have that looks at 7-year data and we are able to project what would be the losses. For the high-risk segment, specifically the RBI RE, we had made specific provision that is now finished. Whatever you see is a standard provisioning model now. Some of them could be in recent times, some could be older. But this is the BAU model now.
The next question is from the line of Saurabh Mehta from East Lane Capital.
I had 2 questions. First thing was, I wanted to understand volume wise, the mix of the corporate and retail spend. Like how much percent of our cards are corporate and retail? And a follow up to that was, what is the retail spend per card? And how long we think a retail customer could reach, say, INR 2 lakhs spent? And what will be the drivers for that?
So in corporate, the number of cards is very minimal. So, we will not have more than 50,000, 60,000 or so. So cards, there the -- it's basically a large spend coming on one product in this. So whatever you see, when we say, 14 million plus cards, it's essentially retail cards that we're talking about. And we have declared the retail spends also on quarter by quarter basis. So the average spend we can calculate. The number -- you talked about a particular number, all we can say is that, as I was mentioning earlier, that different new categories have come. We have seen the increase in the customers spend per card. And if we go by vintage analysis, because newer customers take some time to build their spend. Actually the spends of some of the older vintages would be closer to that number. So, as we are adding more cards or new cards when they come in, initially their spends are lower and then they build up over a period of time in a period of 18 months, 24 months. So, this is a continuous cycle, because customer also gets comfortable with the product, we also educate them, we also tell them about various offers and various categories once they become -- start using that product, they use it with multiple categories. So it's a progressive exercise that happens. So if you see customers who are pre, let's say, 2015 or so, a whole lot of those customers would have already reached that number. So it is not about that. But it's how the weighted averages move. And what you see today as a number is a weight of a -- is a weighted average of the overall portfolio.
Ladies and gentlemen, this will be the last question, which is from the line of Rohan Mandora from Equirus Securities.
Sir, a data-keeping question that I had was in terms of the new categories, which have come up post-COVID, what would be the contribution in total spends from them, where the used cases where the spend momentum has improved?
See, if I take rentals, some of your insurance bill payments and utility, these categories can contribute anywhere between 10% to 20%.
10% to 20%, okay. And sir secondly, what will be the....
On a month-on-month basis, variation is there.
Sorry?
On a month-on-month basis, there will be variation because certain categories -- insurance is more due towards March versus some other months. So monthly variations will be there. But that is the range.
Sure. And sir what will be the average -- different in the spends per active card in Banca versus non-Banca and also the revolve rates?
Actually, spend per active card in Banca versus non-Banca is almost similar. In Banca, we have to work slightly more towards getting the activity -- percentage of the customers active to be higher. So the customer who starts using the card, fortunately starts using at almost the same level. It is about getting more number of customers to start using the card and use it fully. So that is the -- and use it continuously in a month because we want our customers to use the card every month and that is [ break ] amount.
It is slightly lower in Banca as compared to -- I am talking about the revolve rate, you have asked for the revolve rate in Banca, it is slightly lower as compared to open market. But you also have benefits basically by way of having access to the operating account. So collection and recovery, you don't spend that kind of cost and automatically, you will get the benefit of lower delinquency credit cost as well. So, I think we need to look at overall. I mean, while it may not revolve, it will also not lead to complications downstream in terms of collections and recoveries.
Sure. And sir, lastly, the spends which are getting converted into EMI, what would be the average ticket size in that? Like what kind of spends averages get converted into EMI, some ballpark range?
It's around 20,000 to 25,000.
20,000 to 25,000. Sure, sir.
Thank you. Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to Mr. Rao, MD and CEO of SBI Card for closing comments.
Yes. I would like to thank my colleagues at SBI Card who have been the drivers of our success and have helped us achieve growth and innovation irrespective of the environmental conditions. I would also like to thank our shareholders and business partners for their continued faith in us and their strong support. I would like to reiterate that as an agile and adaptive organization, we will take all measures to safeguard our business, while pursuing sustainable and profitable growth. Stay healthy and stay safe. Thank you all.
Thank you. 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.