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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to SBI Cards and Payment is Limited Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ramana Mohan Amara, MD and CEO, SBI Card. Thank you, and over to you, sir.
Thank you, [indiscernible]. Good evening, everyone. I am pleased to welcome you to the Q4 and the FY '20 earnings call. I really appreciate your presence today. As you would know, while global economy remains uncertain due to many factors including geopolitical 1 teasing, it seems to be [indiscernible] towards indentowards improving with IMF radiator growth rate parting out in 2023 to 2.8% before rising to this as economic activity in India remains resilient. The real GDP growth is expected to be 7% income as [ '23 '24 ] [indiscernible] both EMA manufacturing and PMI services remained robust in March '23 at 52.4% and 57.8%, respectively. Aggregate demand conditions remain to resin. According RBI's agents consumer confidence base, consumer confidence continues to improve. Most importantly, the service show that household spending was [indiscernible] higher essential or a non-effective side and more than 1/3 of the households expect a rising nonessential outlay over the next year.
This is a good [indiscernible] consumer demand and decrease expense. Apart from which comparative economic result exiting these signs, [indiscernible] also being raised as a front runner when it comes to displays. This is true when we look at assets like innovation in payments, base of corruption among population and the best user base. According to a recent industry report, India's digital payments market will increase from $3 trillion to $10 trillion by year 2023. [indiscernible] credit cost to continue to rise this digital payments growth was. Credit card [indiscernible] grew from $73 million in March '22 to over $85 million in March '23. It is despite the proteo around 1 million inactive cards by the industry. Our spends have also increased significantly by 28% from 1.07 lakh [indiscernible] in March to INR 1.37 lakh crores in March '23, the highest table [indiscernible] expects for the industry. Power spends continue to remain over INR 1 lakh crore. For last 18 months in e-commerce contributing to a significant share in the prices. It is interesting to note that in FY '23, the industry our highest ever annual cost rent at INR 14 lakh crores plus. In FY '23, the industry [indiscernible] the highest customer [indiscernible] during October at INR 1.29 lakh crores and a strong winter targeted season added to increase travel spend [indiscernible]. This clearly demonstrates the robustness of the demand and the usage for credit cards. In fact, the past year has been able for the industry with many significant changes to the business model that have set the tone for future of trips industry. The industry has largely adjusted to an incorporated deal in a seamless manner during the past 6 months and is now ready for the next development. I would like to reiterate my confidence [indiscernible] market protection, a significantly underpenetrated market after and to growth opportunities throughout the customers.
Let's now give us overview in FY '23. And [indiscernible] to say that [indiscernible] able to navigate through the year and registered a robust business performance, demonstrating the resilient and sustainable business model that we have been over the years. As always, we continue to create value for our stakeholders. And I'm pleased to share that we declared an interim dividend of INR 2.5 per equity share for FY '23 in the month of March. Throughout the year, we could focus ever on 3 aspects strengthening acquisition channels and acquisition quality, enhancing sustainability of the business and ensuring an engaged and active customer base. As a result, during the course, we have achieved some new benchmarks. We added 5,200 or 5.2 million. Total accounts in FY '23, which has been the highest ever during the rate. In FY '23, our new accounts grew by above 46%. During Q4, we added 13.71 lakh new accounts at a growth rate of 57% year-on-year. We continue to focus on adding about 900,000 to 1 million cars per quarter on debt basis, and in line, we have added 900,000 cars in Q4. Our cost input stood INR 1.68 crores in Q4 FY '23. We continue to be the second largest scraper issuer in the country, and our cost outstanding in terms of cost outstanding market share improved by 100 basis points to 19.7% during the segments. Our spends have also seen new highs in 2. We got the highest ever depends in FY '22 at over INR 20 crores, which is a 41% increase over the frequency.
Our cost spend to Q4 [indiscernible] INR 71,686 crores with a 32% year-on-year growth, and this is the best ever quarter in [indiscernible]. Out of the reins contributed over INR 55,500 crores with 33% year-on-year growth in your Q4 FY '23. [indiscernible] second, again, the best quarter for a the biggest. It is not perceived that our retail spend per card has also increased by 7% year-on-year in FY '23. On that note, I'm pleased to share that we are #2 positioning we match market share. During Q4, ,thanks quarter-on-quarter basis has been driven by growth in categories with department stores, health, utilities, education, consumer deals, surmising and hardware, et cetera. Cap, entertainment and restaurant category also saw good growth. In fact, Q4 FY '23 has been the first quarter in the last 3 years to support the travel momentum in an only Depend continue to grow in sequently, reaching a 5.9% share of person participants.
Our continued robust gives momentum also helps us register get financial recipe FY '23. Let me share some key ones. Our product division today to INR 14,286 crores and has grown at 23% year-on-year for the year FY '23. Our revenue from operations has seen growth [indiscernible] have grown by 30% [indiscernible] as compared to [ INR 181 ] crores in March '23. [indiscernible] INR 2,258 crores registering a significant 40% growth over FY '23. [indiscernible] some significant initiatives on the product side during FY '23 [indiscernible]. And added tax -- since this launch, the part has been very impressive response of the consumers. We launched a new Pro-branded card, task partnership with ambiance. We have been working on several initiatives in strengthening our acquisition channel and enhancing customer experience. Technology has been playing an important role as we bring these 2 [indiscernible]. I'm talking about ASP part print rollout. ASP space is an antistatic and has been a significant initiative to be launched during the year, which has made enrollment by customers India, creamers, software and instant. This allows the customers to get a card in this 5 to 7 as enhancement. We have lost recovery initiatives to evict the KG process across the customer journey to enhance security and timing needs for our customers. Multiple malls biometer TPP, disaster, media dam, et cetera, our newer customer needs. It is most pertain of the efforts are helping us in rationalizing the cost affinition, opening the business fundamentals.
We are excited with the opportunities on the increase of rotator with the API. Access to the large merchant and hence customer base, we put some industry players, we plan to roll out the line over the next few months. Speaking of divine liability, it is important to note that higher customer spend active rate is vital. And the [indiscernible] part, our spend tax rates have obviously been 50%, including India [indiscernible]. We continue to have a good strength and highly capable senior management team to lead the company towards new pass growth ratings. I'm hard to share that this year, too, all on efforts have been duly depend part has earned it is prestigious repositions in different areas. For instance, we just ran second about TV awards for customer service and holding peaks National Training Award for Excellence in trading and development initiatives. Coming to the financial performance in Q4 FY '23.
Our [indiscernible] revenue in Q4 has been at INR 3,917 crores, resisting a growth of 30% rate year-on-year. In Q4, our revenues from operations have been net INR 3,762 crores to 32% crores. In Q4 FY '23, our tax grew at INR 596 crores in [indiscernible] and 17% quarter-on-quarter sequentially. In J2, as expected, owing to continued interest rate increases, our cost of funds has also weakness to significantly increase. As we communicated last quarter, our cost of gas increased by 13 basis points in Q4 over Q3. We were able to minimally impact our NIM and our Infracore 11.5%. Our cost to income for F entity was at 58.9%. We saw an improvement in cost-to-income ratio to 58.1% versus 61.9% in Q3 FY '23 [indiscernible] related expenses being lower this quarter. On asset quality, our NPA increased marginally in Q4. GLP stood at 2.35% as of Q4 segment. Our gross credit cost decreased 26.3% in Q4. We devised the model estimates this quarter, good and talk about PL model. We revised the model estimates this quarter, which is use onetime impact of 20 basis points on timelines. Assisted project, our gross credit or would be the range that we have shared our way pipeline plus 1.2%. We have identities segment from the legs portfolio that has contributed to higher restages in last few quarters, impacting the NPA and the write-up numbers. We have taken portfolio actions and expected actions taken, we will be able to add ratio.
The U.S. division from [indiscernible] coarse detail onwards beginning as the expectation in comes update. Our profitability ratio also continues to improve. In FY '23, our return on average asset increased to 5.6% versus [ 4 ]% in effectively. In Q4 FY '23, [indiscernible] has been 5.4%. During the year, our return on average it has also seen an increase, reaching 25.3% versus 22.8% in peen.In Q4, or has been 24.6%. In conclusion, India in resilient and the domestic consumption drilling sectors. At SHR, as always, we have maintained that main approach and taking de-penetratimeasures to ensure that the company remains on sustainable and profitable growth part. Interest rates related, however, this has been factored in under likely suite with [indiscernible] such growth momentum and most policy measures to now largely in place, the credit part industry is likely to give a sustained growth momentum.
I would also like to share that this year was in rating 25-year topics inventory sector. We look forward to separating this all of our stakeholders. While we look at the last 25 years units, we believe that the future is much more promising. So now we are open for the questions.
[Operator Instructions] We have a first question from the line of Mahrukh Adajania from Nuvuma.
My first question is on credit cost. You already seen that there was a onetime impact of change in ECL assumption, so if you could elaborate on the change and also in general for the industry result rates have come down a lot posts. So why are credit costs sticky? Is this cause for them to come down because regular are declining so much, then credit cost should also be lower as the general trend. .
I think this is a onetime adjustment an impact of 20 basis points is in terms of strengthening the ECL model, we test the model and based on the current economic factors, macroeconomic factors, we a modified the model has reentered around INR 20 crores kind of impact in the quarter. The annual returns out around 20 basis points. In fact, if you adjust the credit cost for the 20 basis points, it's around 6.1%, which is just higher in the spectrum, what we have given. I talked about the gross range of 5.8% to 6.2% trading cost, which takes into account the current composition of the asset, the censhare of revolver, transactors, new by loans, current economic conditions and the type of mine which we are operating and the consent. So we are at the higher end of the section.
As I complicated earlier, we have taken -- we have identified the segment very clearly. We have been taking portfolio action. We are expecting that credit card credit cost will trajectory of coming down in the next 2 quarters. It will come down.
We have a next question from the line of Kartik Chellappa from Indus Capital Advisors, Hong Kong Limited. .
Two questions from my side, sir. So over the last few quarters, we have seen a very good recovery in our card volume share, which is a 19.7%. But if I look at the difference between our card volume share and expense share, which is almost close to 1.5% now, that's almost at 9 to 10 quarter high. So given that we really good momentum on the volume side. Why is it not reflecting times yet? Is it a reflection of the quality of customers that we are getting either geography-wise or self-employment or a salary-wise. And at what point of time do you take this different are [indiscernible] stock.
As a response to a trading the offer can supplement. One you know the pet compares both retail and the corporate expenses. So we have seen the kind of volatility in the market share in terms of the end whatever the corporate parent move from on based on core significantly a month has spent shape. So being mindful of this and also the minor of the fact is on the top line, it doesn't add much to the bottom line, but it can potentially be. We have been playing a very calibrated gains here. That's the reason our cost rate cost spend actually a contra is a range on it is [ 42% to 45% ] of our overall expense. But with regards to issue it, we also commented about robust in the volume. As you know, take sometimes the customers could start using the [indiscernible] fully. We may start with the motor transaction to begin then. But the moment they experience the benefits of using us, they will start using the distress, et cetera, and then you can see a large ticket transaction. In the volumes have on only 4 after 2020, I think there is a catch-up here in terms of being import portfolio, we will take time for the new intention. So Kartik, in the new customer acquisition that we are doing, these days because of the RBI guidelines, you have to keep the customer active if say the customer is in active for more than 12 months, in any case, the customer gets part of your portfolio. So what we are seeing is that all the new customers that we are getting their average spend actually is coming out quite better and higher than the earlier vintages that we are getting at the same point of time. So which is a good sign. The second thing, which is also visible in the portfolio is that these customers are -- their active rates are also higher in terms of, let's say, 2 months, 3 months or month active. So they are also higher. So we don't see any issue there.
As [indiscernible] was mentioning, the issue on the market share primarily is because of the mix that we are targeting of retail versus corporate spend. So there will be some times which will aid a higher corporate versus retail be. So it will -- the shares will look very, very different. Then we check because there are other sources through which we take, we see that average retail spend of us is similar to the industry.
If you want me just add, even on the Slide #8 in the debt, you will see that our quarter for FY '22 retail spend, but average card was 144,000 and it's gone up to 136,000 per quarter for FY '23. So there is an increase that you can see already in the retail spend per average cost. And since outsourcing for us has happened in the last 1.5 meters, there is a bit of catfish which is not reflecting it already as seeing the benefit of the spend going up in metric on spends.
Got it. That's very useful. And my second question is basically on the new RBI direction on pre-sanction credit lines through [indiscernible] now although the details are rate unwind. Is there any thought process on how it's going to be impacting credit cards?
So as you rightly said that there are guidelines still yet to come, but these kind of products are already available. So people were already giving because UPI entry -- in a way, if you see for a debit curve to make a transaction online, that model is there. And only limit on the bank account or debit cards are always there. So we will also see as to how it goes further, but this is just a different version of the earlier product, which are [indiscernible] is Okay. So
[Operator Instructions] We have a next question from the line of Rohan Mandora from Equirus Securities.
To understand the major slippages that have happened in this quarter. What is the vintage of the customer? And is it coming from salaried or self-employed some card that Second is that, if you look at the originations, they have picked up in a self-employed category in the last 2 or 3 quarters. So if you can touch upon what is the customer profile of these customers? And what is the origination channel for this? . And lastly, if you could share some guidance on NIM and cost of funds for FY '24?
I think with regard to the vintage, we see as I clarified in my speech as well, the new vintages are holding good in terms of what our expectations we had in terms of the very broad delinquency brand and ECL kind of consumption, we are behaving normally disclosure of that. But in the legacy vintages we identified a small customer base, which was showing the higher delinquency. Obviously, there be a higher flow rates and the higher API which is leading to higher write-down. This was. There is nothing can be pointed out, which is all across in terms of geographies and the nature. So we are taking portfolio actions that are required. So we have confined that actually as the retail for the recent and as we have the actions taken on the regent shows the results, actually the rate cost in because as an area we do [indiscernible]
So on the cost of front, we saw on both the actions taken in quarter 3, which obviously resulted in the cost of funds going up in -- there has been 1 more action by RBI, which is a 25 basis point increase in February. On account of Dan, we do expect that the cost of funds for quarter 1 FY [ '21 ] would be higher by about 10 to 15 basis points. It seems from the statement that RBI has made so far. So as I did mentioned the 1 mentioned is the Paaras. I would not expect any further rate hike from the -- in fact, in the case, I would expect that the cost of funds to stabilize for quarter 2 and maybe start to inch down in the second half of the year. And on the NIM, therefore, the corresponding impact will be that while we've been able to maintain the engine quarter 4, very marginally from quarter 3, we do expect the need to stabilize over quarter 1 and quarter 2 and any benefit coming from the cost of an and also any actions that we have been taking which we took in quarter 4 will be taking further in quarter 1 on the customer deals will help us tender the NIM in the second half of
Sure. So just on a follow-up on the first elite earlier vintage sectors where we are seeing delinquencies. Are these prepandemic originations, just to confirm? And also on the salonisionations if you can just touch upon that question pending. .
Yes, the portfolio that Mr. Rao mentioned, is a pre-pandemic portfolio. It's a subsegment or 1 segment that we were enticing which was originated at me. And I think your question was is seen, the answer is a mix of selling standaway. But we've taken funding portfolio action based on whatever further of segmentation that we can do.
We have our next question from the line of [ Bhavik Dave ] from Nippon.
Sir, 2 questions. One is on your cost of acquisition in the sense that when you see incremental cars that we are adding in the last 4, 5 quarters, we've been adding cards, the tier 3 or tier 4 regions. Just wanted to understand if the cost of acquisition to be similar when we do acquisitions [indiscernible] versus Tier 3, Tier 4 acquisitions. That is point number one. Point number 2, when we see quarter-to-quarter, the operating expenses are falling that you've seen last year same time. What would be the larger -- what has led to this cost of other operating expenses being flat is in that the fees in coming the commissions have increased like 10% quarter-on-quarter. Just want to understand what exactly is happening there. And to that, I just want to understand, going ahead, and operating expenses come out lower as a percentage our income considering we are doing this online channel that we opened up incrementally. So I just want to get a hint on that. .
So cost of acquisition on a year-on-year basis, we have seen a downward trend in fact plus downward trend that we have seen in the Costar acquisition. We -- and because you mentioned metro versus but we do not look at it from that perspective, but we can tell you that data faster acquisition is lower than open market portal acquisition. And for the lateral reasons that in the banca scenario, there is a kind of leads, which is available for the come customer.
Apart from this, there is a constant effort on the digital side of things to bring the cost of acquisition down as going further, as we go more digital and as we -- and as [indiscernible] mentioned that we have launched the Sprint journey, which where you can get the card within 5 to 6 minutes in your hand. As more number of customers pass through that and we are able to generate more volumes there, the cost of acquisition will further trend downward in the direction.
And I think your second part of the question was that the operating costs have been flattish quarter-on-quarter. Is that what you're asking?
Yes. And last year, same time, third to fourth quarter leads. I just wanted to an end up, if you see this quarter versus last, the number of cars that we added the gross additions were lower, right, like 1 million was 900,000 cars this quarter. Just want to understand like why are we seeing like the cost of -- sorry, other expenses going down quarter-on-quarter .
So the reason for the cost to be flattish quarter-on-quarter between quarter 3 and quarter 4 are certain IT expenses that we've done, certain projects that we have started in quarter 4, and the cost of that has come in. So while you're right that the cost -- and as you should explain in the cost of acquisition quarter-on-quarter been coming down. The overall operating cost is higher due to certain project costs taken up in quarter 4.
Sure. And this will now is like cost of acquisition going down should benefit us in FY '24, right? It costs should not accept our rewards and promotional expenses that we do expect that to the other part of the cost structure should like trend flattish or lower, right? Is that a fair assumption? .
On a quarter-on-quarter basis, there can be some variation because in our model of acquisition, there is we acquired through digital and the cost is very low. But otherwise, if you go through manpower, there is a set of fixed cost and then there is sort of variable costs. And there is usually some amount of variation and that happens on a quarter-to-quarter on a month-to-month basis. But on an annualized basis, we will be trending down.
Sure. And last question is out of the 900,000 cars that we added, the online, the Spring journey...
Sir, I request you to come back in the queue, sir.
Yes, sure. This is last question. How much is the spring journey contributing to a 900,000 cards? And how is it trending? That's the last question.
So as of now, Sprint does not contribute much large percentage into it. It's a very small percentage. The reason primarily is that as of now, we have kept it only for purely digital and for cash back card customers in that sense. We are slowly integrating it with our partners. So as of now, the process of integrating it with our co-brand partners is on. One is already done. The other partner is in progress. We also want to integrate the print journey with our with the bank along with our Internet banking. So these are the things which is in progress. So once that happens, more number of customers certainly can express and use the print journey on a regular basis. So we expect this to rise rapidly now that we have tested that it works absence and the customer can be given a card within 5.
We have a next question from the line of Bavesh Kanani from ASK Investment Managers.
Since there is no response. We'll move to the next question from the line of Alpesh Mehta from IIFL AMC.
Sir, 2 questions. First is on the [indiscernible] loans. We are seeing the sequential improvement in the. [indiscernible] so what has been the increase in the percent...
Alpesh, I can not hear you properly.
Alpesh, we can't hear you.
Can you hear me now? Yes. Those...
Since there is no response, we'll move to the next question from the line of Shubhranshu Mishra from Philip Capital.
Two questions. One is given to the fact that the [indiscernible] what are the new revenue line items that we are looking at or we want to develop? That's the first. Second is, what is the margin contribution difference between retail spend and company spend?
You have to repeat the first question, Shubhranshu, we got the second one. What was the first one?
So given the sale that revolver as a proportion has lowered a range found so the interest income is therefore getting mitigated. So what are the new revenue line items we are looking at or focusing on which can be implemented to the top line [indiscernible]
I think revolver is steady. What are other line item [indiscernible] revenue that to enhance the revenue.
I think we have stated in the past that we will be looking at the revenue optimization through the cross-sell. We have various products like cash, like day balance transfer and the subvention of these products are there. We are upwards, we are also adopting a risk-based pricing to be more competitors in the market to -- and we are also looking at like what are the other risk mitigants that are available to expand our base that is visible for availing these products.
So that way we have clearly increased the share of the interest-bearing MEA. If you look at revolver plus CMI, it has increased by 2 percentage points for a year's time. So this endeavor will continue. But of course, we will also be looking at the income quarter of the other base and means of supplementing some of the revenue lines that got operated, particularly after the -- some changes have come into effect on the October 1. We didn't month market and the stakeholders, we have introduced to 2 types of fees. So we will continue to look for kind of avenues to augment our current speed. Margin contribution [indiscernible]
Second question is the margin contribution in retail spend on the corporate side.
So on the corporate spend, the margin contribution is very minimal because whatever we earn as primarily interchange gets passed back to the customer in the form of a pass back or an offer. So on the corporate side, the contribution is fairly minimal. On the retail side, while we get interchange, but we have to give customer reward points. So there is an element there. And we also give up to 52 days of editing period. So these are the 2 major things. After that, there is a margin which is still left. We also make money from fee and charges also from interest income so there are multiple other sources in the retail scenario, there is in case of corporate because it is customer base 100%, there is no interest income.
If I can sneak in one last question. What kind of spend growth are we looking at in '24 and '25.
So as per industry sources, we believe that the spend should grow anywhere between 22% to 25%. We will try and keep an alpha on top of the industry [indiscernible].
We have a next question from the line of Alpesh Mehta from IIFL AMC. .
Am I audible now?
Yes.
Okay. Just 2 questions, sir. Firstly, on a sequential basis, we have seen around 30, 40 basis points improvement in the yield. So what kind of pricing action you would have taken on to the MI segment because the mix is largely stable on a Q-o-Q basis.
I think as we have said in the past, we have around the kind of risk-based pricing, which permits land of transmission of the rate, whenever the funding cost increases or whenever the other costs increase, we also can transit back to the customers. So that is the strategy that we at last quarter when we revised the prices for some of these loan products. I talked about in cash, talk about [ quick ] pay out and other loans. So we were able to successfully transmit that rate, but the new disbursements because unlike kind of others in the industry, where the entire portfolio gets reset because they are [indiscernible] benchmark. In our case, mostly the loans carried fixed rates. So the opportunity to transfer is only best of new divestments, which we were able to do [indiscernible] last quarter.
Okay. And there is no change on to the revolve yield. [indiscernible] revolver remains. Because I believe...
There is no change in the ABR revolver remained same and the share in the overall asset also remains same. So obviously, there's no change in the revolver contribution.
Perfect. And just the last one, if you can throw some light on to the instance based fees than the others because that contribution has gone up sequentially. So any major line item that would have contributed more in this quarter?
Yes. The instant base fee was higher, largely because we -- if you recall, we introduced the fee on the rentals and we also increased that fee from 99 to 199 in a month of March. While of course [indiscernible] that increases minimal given that the number of days that was effects led, but a significant portion of that excess come from the rental fee. There are some elements as well. But this was a major contributor. .
Perfect. And lastly, the 20%, 25% increase into the fine growth that you are factoring in, that does not include -- does that include any action on the rental payment side as well?
Sorry, the 20%, 25%...
Growth onto the spend side that the industry is expecting since now on the rental, there are no rewards and the sum fees are also introduced from that. So do you expect that to be stable or that could be -- that could see some drop in the expense growth?
No, should not. Because it between Q3 to Q4, as Rshmi was mentioning, in Q3, mid of Q3, we levied INR 99 as a fee. And in March, we increased it to INR 199, we have not seen any raw on a month-on-month basis from Q3 to Q4 on the rental spend. So while Absolute growth might not be similar to industry level growth, but it will still remain stable or marginally.
We have a next question from the line of Anand Dama from Emkay Global.
So firstly, on the NPS front, so which have gone up quarter-on-quarter and also have gone up [indiscernible] but just want to get like whether these NPAs have come or the step has come primarily from being monitored [indiscernible] full, or this was all of a surprise that basically changed during the first quarter. And if you have the -- typically the exercise of design the test, then is there any pool that you can talk about that you have identified or the [indiscernible]
I think you'll have to repeat the question. Most part of it was not understandable
So basically, sir, 1 is that the NPA flow that you saw during the current quarter was is basically out of the identified stressful or basically, this was all of a surprise that we saw in the fourth quarter.
The question is that the NPA increase that you've seen, is it largely from the identified stress pool that we called out? Or is it across [indiscernible]
No, I talked about the small segment having a higher delinquency. It means like you expect a kind of contribution on the legacy portfolio, some new vintages that we will take. But this segment what we identified is a higher [indiscernible] to deliver and because we have seen for a recovery efficiency or collection efficiency in this segment. We noticed there is actually a stress based, that was the reason we have taken some portfolio actions there in terms of minimizing the cross-sell or not offering the probe and other core actions that are available, we have -- we've taken a few and some more are on the anvil. But again, at the cost of repetition, the latest [indiscernible] is behaving exactly as per our expectations. So we expect these actions to eventually result in a tie, lower seat cost for period of a couple of quarters.
Okay. But going forward, like running into the first quarter, do we have any kind of test that you relied already? And if yes, if you can quantify that.
Quantify for the next quarter?
I think, as I said, it's a work in progress, but some of these things will also take time. While we are very confident that it will have a downward trajectory. I think bottom will be a kind of stabilization period before it actually starts evidence kind of real. But of course, the onetime trend of what happened is not expected to repeat in the next couple of quarters because it's purely modem-related adjustment. So we are confident that the overall trade cost will -- maybe it will not cross [indiscernible] whatever we have given, that's compete, but actions would take time. But over a couple of quarters, definitely, it will come down.
We have a next question from the line of M.B. Mahesh from Kotak Securities.
2 data taking questions and 1 qualitative question. The first is to Rashmi ma'am. Can you just explain what is -- what explains the sharp increase in business development income? And also, how do you account for recovery from previously written-off accounts? Does it go to the noninterest income line? Or is it adjusted against the write-off -- provision, sorry?
So the business development incentives are basically the milestones are kind of milder incentives that we get from our partners. These are part of -- these are basically contracted it elaborates on our way in terms of the number of cards that we issue on a particular network and also on the spend that we do on those cars.
Yes. In a sense, what explains this jump for the quarter?
So if you -- I think the jump is explained basically by the sourcing of cars that we did in quarter 3 and quarter 4 and also the higher spend we saw in quarter 3 and quarter 4. So while most of it was seen around December also, but the impact of that has come in at quarter 4 only -- largely.
Okay. And recoveries from written-off.
Recovery from written-off grow into our other income as bad debts recovered.
And this gets clubbed under instance based [indiscernible]
Get, sorry.
Where would you [indiscernible] this income -- in the noninterest income line -- which line item?
It goes into the other income line. So if you look at our financial statements and if you pick up the other income line, there will be a [indiscernible]
[ INR 954 crores ].
As bad debt recover.
Okay. And the quarter 2 questions are brief probably this question. If you look at your card book today and you look at the, let's say, the below prime segment, how has been that spend -- how is that trend category set of customers kind of where are they in the journey of recovery post co right now.
So Mahesh, after the, let's say, customers with vintage, which was pre-COVID on their spend journey, they have all recovered back. Impact, they had recovered back long. I would say, almost a year back, they have recovered that. New customers, which we acquired during COVID, they were showing some bit of depressed spend in the year 2021. And it is that catch-up, as [indiscernible] was mentioning, which is now happening, and it has -- we have seen that this has happened this year.
New customers acquired during this last, I would say, 15 to 18 months are showing very good spending behavior, very good activation rates. We -- as you have been seeing, we have been focusing on more younger customers where the activity rates are far better. So from a spend perspective, on an overall basis, I think we have it's already caught up. There is only 1 category of spend, which is international spend, where I believe that there is still more opportunity. The balance is -- has broadly reached higher than COVID.
In fact, on the travel side, we have declared some of the numbers also. So this is the first quarter in Q4 after FY '20 that we have indexed at almost 140% of what we were in COVID on the travel specifically on the domestic side...
In a tenth choice of spend that they seem to be taking still seems to be overwhelmingly on the EMS side rather than revolver. That journey has still not happened from that segment. .
I would state that if I look at spend converted to EMI, that spend conversion to EMI, if I take out the rental spend because rental typically is more of a transactor trending in nature. If we take out the rental spend, our spend conversion to EMI actually that percentage has become higher. So that number has gone up compared to what it was pre-COVID conversion. And that trend is fairly visible across segments. And when I'm looking at conversion to MI, it is either at the point of sale or after you have paid before payment period you have converted to.
We have a next question from the line of [indiscernible] from Schoenfield.
Am I audible?
Yes, you are. .
So just follow up on the cost of fund comment. So basically, you are saying that because of repo hike last quarter and then the first quarter before we will see 10 to 3 basis points increase in cost of funds. And then after that, because I have a repos, we should not see any increase in cost of funds, right? But I'm just a bit confused because if I look at historically, when IBI was cutting rates back in 2019 and early 2020, the repo bottom about 4% at June 2020. But if I look at our cost of funds, it only bottom about 3, 4 quarters later. So there's a timing lag in terms of recognition of the time when repo posed or bottom to our cost of funds stabilized. So just wondering why this time the cost of funds should immediately stop increasing the moment RBI stopped hiking? I saw 25%, 30% of our funding is from which MCV price we got the open back, right.
Your comment is that the cost of funds, why is it increasing when the RBI has still paused.
Because you guys are saying that second quarter FY '24 cost of functions don't increase, right, decline because RBI has paused. But historically, our cost of fund repricing, if I just look at most recent episode where RBI cutting rates, there's -- our cost of price of cutting 3, 4 quarters after RBI stock cutting rates. So on the way up, shouldn't there be a repricing lag as well. So our cost of function continue to increase a bit even after RBI cost because some of our funding could reprice within that.
Pulling of the data for the 2008, '09 that you're telling me about a really pull out that data. But just a few pointers in terms of how do we see the other sports get impacted. Number one, as we treated in the past as well, that the transmission of any market rate change has happens under our portfolio with a lag. So what we saw is an increase in the cost of funds in quarter 3 and now in quarter 4 and what I'm talking about in quarter 1 is with a lag. The RBI started increasing rates in April of last year. So April 2022 is at least for the first is the record rate. We didn't see an increase in our quarter 1 till quarter 3. So it was almost after about 7 to 8 months that we first felt the impact of an increased market rate on our portfolio.
The second point as to why did we see after 6 months and by -- why are we not immune to it for another 12 months, 24 months is because our liability portfolio largely comprises of shortcomings. And that's typically again to do with the kind of assets that we have. If you look at the asset breakup, almost about 39-odd percent is transactor. There is a revolver percentage, which again is short term in nature. You don't really have too many chronic revolvers. So in order to have an ALM and in order to have a match funding position with respect to assets and liabilities, we've also been boring shot and which is why every 6 months, every 9 months when the portfolio comes for is when we're actually able to feel the impact of the market rates. So those are the 2 characters that I wanted to first lay out.
As I said earlier, we've seen another rate hike in February. The impact of that will be felt as our portfolio from whatever portfolio, whatever amount of our portfolio comes to reprice in the first quarter. We've done some modeling around that, and we expect that, that increase is going to be 10 to 15 basis points. I called out earlier, and if there are no further rate hike, we shouldn't see the cost of funds stabilize over the next 2 quarters. And if the cost -- if the market rates start to trend down from now onwards till the third quarter of this financial year. we will then see the impact of cost -- on the cost of funds, where it starts to come down towards the end of this financial year. So you're absolutely right. It is with the lag because our portfolio gets repriced almost at about a 6 to 8 months kind of of sequence, this is how we've got the impact of the market rate.
[Operator Instructions] We have our next question from the line of Pankaj Agarwal from AMBIT Capital.
Ma'am, if I look at your cost of funds, it used to be 8% before COVID where the policy rates were almost similar to the current year. It used to be in the range of 8% to 8.5%, right? And so what has fundamentally changing your funding profile over the last 3, 4 years, so that your funding cost will remain below pre-COVID levels.
I don't think you've mentioned that we're going to go -- so we've said that the rates are going to go up. .
[indiscernible] around with the policy rates remaining more or less it how are we confident about the productivity to increase only 10% basis points. I think if you're comparing a situation 3 years back or 4 years back, I think the share of long term in our overall funding have been placed over the period of the last 4 years from a 9%, 10%, [ 215% ] to [indiscernible] to now as in the overall. So that provides a kind of including secrete increases. So we have been steadily increasing. But of course, when the rates are peak, obviously, we are looking at what is the right timing and what is the right instruments. So our endeavor is to continue to increase it in a meaningful way, in a very calibrated way, [indiscernible] so it has been flat. But of course, as Rashmi has also said like we want to do the match funding, and we want to get the opportunity of pricing it actually at the [indiscernible] rates whenever the market rates get. So that's the fundamental difference between a 4-year back scenario and current scenario .
So basically, your duration of your liabilities have come down over the last 3 quarters, right? .
[indiscernible] of liabilities increased because the long-term share -- long-term liability of the NCDs of 3 years or otherwise subordinated bonds are kind of maybe 10 years what we rise, actually it has increased actually over a period of time.
Then, I mean, what the case, don't you think that your funding cost can go get to 8% at some point of time despite the current cost, the reason I am asking....
There is what we also need to take into account is what Mr. [indiscernible] just mentioned that the increase in our long-term funding has happened in a scenario when the rates were lower. So we've been increasing our long-term fund and post provider rates were low, and we are benefiting from that.
Okay. Okay. So basically, you're lumping a lot of funds at a very low rate and they are longer duration.
Yes.
Yes.
The reason I'm asking this question is that generally, there is a tenure of premium, right? So keeping everything else consent if your tenure liabilities are high, the cost of funds should be higher. And as I said, is a similar report given 8% cost of fund type of [indiscernible] 4 years back, right? So ideally, if your tenure premium, your tenure has gone up, then at some point of time in the similar policy rate your cost of fund can move it to 8%.
I think we'll have to go back and look at the numbers there. I mean, I do have the numbers for 2018, '19, they're at about 7% over. You also will have to look at the other things besides the repo rate, the credit premium, et cetera, as well. As to how about the credit premiums at that point in time for our triple-rated entity compared to where it is right now. . So we'd like to look at all of those factors. But as I said earlier, that our modeling shows and other times of taking basis point, stabilization. And beyond that, we'll have this year to other market read. If the credit premiums go up, obviously, even if the benchmark rates remain low, the credit premium will come and impact the cost of funds for SBI as well.
We have our next question from the line of Anand from HDFC Mutual Fund.
I just wanted to understand on the base fee income, how should we look that going forward as most of the spend category, where the FBR are generally higher or opening up and we are in action on that. Should we expect the spend base fee income to grow higher than the overall spend next year?
How should we think about the spend base income next quarter [indiscernible]
On the spend -- spend-based fee income is primarily the interchange that we earn from on the spending, it is dependent in terms of 3 elements as we have always been stating. The mix of the categories in which the spend is happening which kind of products, whether it is a premium product, which is at the higher end of network spectrum or at the lower end, which can assist spending. And thirdly, whether it is a retail versus corporate mix. Because corporate typically, now even though it gives you a higher interchange, but you have to do a passback. So net margin, as we have stated, is very less. Over the last period of -- during the COVID, we saw this interchange rates going down because people's consumption in the discretionary items was going down and nondiscretionary was stable, where the interest change rates are typically lower. Now as you have seen, there has been a marginal stability and some marginal increase in the old as the travel has gone up, retros have gone up, last year, those things have gone up.
So what we see is futuristically for the next year, we believe that this rate will remain stable. There are some headwinds and there are some tailwinds. There are both positives and negatives, which are happening in these categories. But broadly, we expect it to remain stable.
Sir, on the instance-based fee income, this quarter, we have seen a sharp improvement. Do you think as we keep on changing more and more avenue, like fee on the rental? Do we see that instance see income to improve further? Or...
We leverage rental fee of INR 99 from November of last year. And then we increased it from March to INR 199. So 99 half of the last quarter was positively impacted by that, but you have to also recognize that the OEM fee was completely not there, which is also an instance-based fee in Q3. In Q4, we have seen a full benefit of 99.5%, almost 7 benefit of INR 199. These are in line with what the industry is charging. Typically, the industry rate is tagging is 100 bps on the transaction. And we have seen that the average ticket size is around INR 20,000 to INR 21,000. So INR 199 is almost broadly in that range. It is in line with the industry average. We have not seen, as I stated earlier, a decline in the spend whether the spend will increase further or not, that is a matter of transaction, but those spend are -- little spend are [indiscernible]
So if I look at, sir, in terms of spend, instant income income is approximately 1.2% of the spend this quarter. Should we assume this trend to sustain or to improve from here on? .
It would not be on rental, it will not be 1.2% because we get interchange on that also, okay? It's not a 0 industry category. So there is an interest change also available. And after that, we are now charging INR 199. So the number is higher. We believe that, that should remain stable at least in this quarter.
Perfect. Sir, this year, our operating profit growth despite the fact that we have seen significantly higher interest rate, we have seen lower revolve rate. How do you see this number going forward because interests will likely stabilize in the second half? And do you see some cost synergy also coming up for us?
I think you are talking about DCC, our operating profit. I think the [indiscernible] it is 17%. But for the quarter alone, if you look at as compared to the year-on-year business, it's 22%. So I think that [indiscernible] this quarter -- I mean, last quarter, it Q3 is still reflected in kind of it observed a negative impact on potato regulatory provisions, which has impacted certain lines like [indiscernible]. In Q4, whatever steps we have taken, more or less, it's reflective of what's the contribution from these new levies. So I think -- and we kind of direction what we are aiming, where we want to optimize the cost, continue to focus on [indiscernible] increase the share of it channels or sorting, this will improve steadily. That's the kind. And overall, if you look at, I mean, [indiscernible] from this operating profit, overall retail metrics, if you look at, the way to look at it, like quarter-to-quarter, there will be fluctuations, given in operating profit, given the [indiscernible]. But long-term average is whatever we have and like a 5% plus, 25% [indiscernible] that will be maintained. That is a minimum mix revenue of assertion.
We have a next question from the line of Nitin Agarwal from Motilal Oswal.
I have 2 questions. One is like -- if you look at the new card sourcing, then over the past 2, 3 years, the mix of self-employed has risen to now 39%. It used to be early 20s. And likewise, the mix of government employees has also reduced sharply. But the revolve rate isn't really picking up. In fact, it has only been like down site. So is there any threshold that you would like to adhere to while broadening the rest filters to boost revolve rate?
So basically, for the second for customers, a lot of [indiscernible] comes from our [indiscernible] channel where we look at their saving accounts, current account behavior, and to onboard them. So it's a relatively better profile. We have a better visibility to the cash flows. So in that way, I mean I would say it's relatively a lesser risk I mean, letter is in terms of [indiscernible] it comes from the bank by channel. In the open market, also, we look at repayment performance in the bureau before we onboard sector customers. So all those checks are done in place. And so we have a better idea what the customers' repayment potential when you onboard set employees.
So [indiscernible] like [ 6139 ] -- so yes. So this number, like we are not looking to have any limit on this 39% self-employed, what we have reported this quarter? .
Yes. Yes, 39% is this quarter contributed early.
Yes.
We are putting any business from [indiscernible] I think, see, the we are operating is like, obviously, we look at what is the potential -- what is the customer choice, obviously. And what is the kind of channel we are using, et cetera, we take it into account. Of course, celiac does matter and the risk is to profitability at the end of the day finally that matter. So as long as all these metrics match and the acquisition is holding in terms of BT expectations, we would like to continue. But so the revolver self-fit because as much as it's very more uprates customers through the banca channel were also repeated facility revolve profile lower. [indiscernible]
We'll take our last question from the line of Piran Engineer from CLSA.
Just 1 data question on -- like if you can share how many rental transactions happened on your platform over the last 3 months? And just to clarify on this instant base fees of roughly INR 830 crores. Is there any one-off, any element of seasonality? or any reason why it should be next quarter of spends don't dip? .
So I've already told you the average ticket size is between INR 20,000 to INR 22,000. And the weightage of spend is almost around 8. So you can make an estimate on a number of transactions.
okay. okay. Fair enough. And next on the instance base fee?
Yes. On the instance base fee, as I called out earlier, that there is a promotion of rental fee that come in, in this quarter, which should a should stabilize or should stay at these levels only for the next few quarters as well. There is some milestone incentive that we've gotten. I think that will normalize over the next few quarters. So while I think if I were to just look at a BAU business perspective, this number should continue to grow. Will it take the kind of jump in between quarter 3 and quarter 4, the answer is no to see a more normalized increase going forward quarter-on-quarter.
I would now like to hand the conference over to Rao for closing.
Yes. Let me thank our shareholders investors and business partners for their continued trust and support to us. I would also like to thank my colleagues at Star for their continued commitment to ensure the company's use. I would like to highlight that Slot strong focus on sustained has helping emerge stronger semi market events. While we cannot control the external factors, but we do believe that our strong business model, our agility as a business and adaptive approach to is well to keep fueling our growth in the future. Thank you all for participating in this call.
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.