As consumption and travel improve, what kind of growth do you see in FY23? Do you have any goals to share in terms of issuing new cards?
In FY22, our cards in force grew 16% year-over-year. In fact, in terms of new account growth, we’ve seen 33% growth in the last fiscal year. Despite economic headwinds globally and domestically, consumer activity is improving, with consumer confidence showing continued recovery, according to a recent RBI consumer confidence survey. In this context, our medium to long-term card supply strategy continues to be at similar issuance levels in the open market and BANCA with some deviations. Also in the future, we aim to focus on sustainable growth in card volume and spending.
What do you think would be the impact of a rate hike on your business?
With an increase in the interest rate cycle, our interest charges will also gradually increase depending on the industry. However, over the years, the composition of our long-term borrowings has increased, which will help limit the impact of higher interest rates. Moreover, the impact will be gradual due to the revision of interest rates only at the time of the revision of prices. If the impact is higher, the company will also assess passing on some of the increase to new EMI bookings, where possible, to offset the impact.
Do you see inflation limiting short-term growth?
The credit card is a by-product of demand, and its growth depends on a combination of factors. Consumption expenditure on the charts is a fair estimate of how consumption changes in response to various external stimuli. In India, the credit card market is underpenetrated and inflationary pressures can impact spending. Specifically, the impact could be observed at the category level, where applicable. For example, in FMCG products, in certain demographics, consumers are seen to opt for smaller packaging to control overspending. In the case of fuel, the ticket size remains constant while the number of transactions increases.
Consumer spending on credit cards has been quite robust. It is important to note that even in the last quarters of the COVID period, expenses have seen a constant increase. At SBI Card, spending was up 11% YoY in Q4 FY21 and in Q4 FY22 it was up 51% YoY. This growth came even when some key traditional categories, particularly travel, entertainment and restaurants, were significantly impacted. So, while continuing to monitor the environment, we remain optimistic about future spending growth as we see categories like travel and entertainment return.
How much business do you generate with co-branded cards? Will this be a key growth driver in the coming quarters?
Our portfolio of co-branded cards is an important part of our business. In fact, SBI Card is one of the largest co-branded credit card issuers in the country. We have partnerships with several major players in various segments such as travel, fuel, fashion, health and mobility, among others. Our many co-branded cards such as SBI Card, SBI Card, Tata Platinum Card, Club Vistara SBI Card, etc. have gained popularity among consumers. Also in the future, we will continue to explore similar synergies to create unique offers for our customers.
To what extent do you perceive a threat from the popularity of UPI and BNPL type products for the card industry? What steps are you taking to address the challenges posed by these BNPL-focused startups?
India has a very dynamic and rapidly changing payments landscape, although cash is still widely used. This has led to the emergence of many new payment formats. As India gradually moves towards a digital economy, different forms of digital payments can co-exist, each playing their part in driving this transition and benefiting consumers. So, although the UPI has gained ground, it serves a different purpose. Similarly, BNPL is a model based on low spending on tickets. It caters to a different segment that includes students, first jobbers, and housewives, among others.
Credit cards continue to be an important form of payment in the country, both online and offline. By April 2022, credit card outstandings had grown to over 75 million, growing around 20.7% year-on-year. Despite this robust growth, credit card penetration in the country is still low compared to the global scale. The growth potential is therefore immense in this segment. In addition, in recent years, we have seen the emergence of many new payment models, their sustainability remains to be assessed and will only be known over a certain period of time.
Can you share some thoughts on how consumer spending has changed in India post-Covid? Are credit card EMIs becoming popular despite the higher cost?
One of the biggest impacts has been the acceleration of digital payments. According to RBI data, in April 2022, e-commerce spending stood at around Rs 65,652 crore, with a share of around 60% of overall credit card spending in the month. At SBI Card, we have seen a similar trend. For example, online spend contributed over 54% of our retail spend in FY22 and is growing steadily. Another key trend has been the emergence of many new spending categories over the past two years. These include categories such as health and fitness, rental, utilities, education, and more. When we talk about IMEs, it is important to note that the nature of IMEs varies depending on categories and offers. Overall, we saw a good increase in EMI conversions both at the point of sale (Merchant EMI) and after-sale (Flexipay). In fact, these contribute to 10% of the overall expenses. As a result, the contribution share of EMI in our receivables mix is steadily increasing. It was 29% in Q4 FY21 and increased to 34% in Q4 FY22.