Credit Card Usage In Smaller Towns Adding To Growth, Says SBI Cards’ Hardayal Prasad

WATCH | SBI Cards CEO Hardayal Prasad On How To Value The Company

Indians are spending more through their credit cards with time. This is true not just for large metropolitan cities but also for smaller towns. That is the demographic where SBI Cards and Payment Services sees significant potential for growth, said the company's Chief Executive Officer Hardayal Prasad in an interview with BloombergQuint.

A report from the Bank of International Settlements report said that there were two cards per every 100 consumers in India in 2017. This rose to three in 2018. The post-demonetisation period has led to a surge in digital payment adoption for day-to-day transactions.

Penetration in tier-2 and tier-3 towns is “pretty low and people have aspirations over there,” Prasad said. This, added to the expansion in the number of point-of-sale machines installed from 1.1 million to over 4 million and the e-commerce boom, has led to increased adoption of credit cards even from smaller centres, he added.

The move into smaller towns and cities has not hurt the average spends per card either. Despite 58 percent of incremental cards going to tier-2, tier-3 towns, average spends have risen.

“The average spend per card has gone up to Rs 1,44,000 in 2019 compared to 1,40,000 per card in 2018,” Prasad said, referring to data for the industry as a whole. What matters is the number of times you transact and swipe your card, he added.

Is there reason to believe that this expansion could lead to increased delinquencies? Prasad does not believe so.

Terming SBI Cards as an “algorithm-driven mathematical” company, Prasad said that all aspects of a consumer are analysed before approving cards. Models around a cardholder's income, debt, cash flows are all put to use before a credit card is approved, Prasad said.

“SBI Cards is also tapping into its parent company State Bank of India's vast database. We are looking at 16 million customers, after the customers' consent. We have 'carded' about 2 million,” he said.

SBI Card's initial public offering went live today with the company already raising Rs 2,769 crore from anchor investors. Shares have been allotted at the offer's upper price band of Rs 755 apiece, according to a regulatory filing. There are 12 mutual funds among the 74 anchor investors, who have been allocated 3.66 crore shares and its value stood at Rs 2,768.55 crore.

The managing director expects the company's net interest margin to settle around 14-15 percent going forward, similar to that of its peers.

According to Prasad, the company should not be viewed as a lender, even though SBI Cards, as a non-bank lender, gives out credit on its own books. Nearly half of its income comes from the interest it earns on “revolving credit” or EMI schemes offered by it. The remaining half comes from fee.

Also Read: SBI Cards IPO: Is The Frenzy Justified?

Prasad says that SBI Cards' business model is unique and should be looked at it as such. Valuing the company using price-to-earnings rather than the price-to-book, which is typically used for lenders, is more appropriate, he believes.

When asked about growth, he said the second half of the year should be stronger than the first half. The company has mopped up Rs 725 crore in the first half and Rs 1,161 crore of profit in the first nine months of FY20. "Second half of India is always a busy season.”