SBI Card's Capital Adequacy To Fall 400 Basis Points After RBI Raises Credit Risk Weights

Capital adequacy of SBI Cards and Payment Services Ltd. is expected to decline by 400 basis points on account of the Reserve Bank of India's revised credit risk weights.

SBI Cards and Payment Services was the worst hit non-banking financial company on Friday, with its stock price falling nearly 5% to Rs 734.20 apiece on the NSE.

Even as unsecured loans account for 100% of its assets under management, SBI Cards and Payment Services said the RBI move is "positive to ensure prudent growth in unsecured lending". However, it may look to raise tier-II capital if the need arises.

As of Sept. 30, the capital adequacy ratio of SBI Cards and Payment Services stood at 23.3%, with the tier-I capital at 20.8%.

"As of now, we are well-capitalised and well above the regulatory guideline of 15%... There is no need for us to raise equity," the company said in a regulatory filing on Friday.

With sufficient profit to fund growth, any hit would be managed owing to "enough sources and diversified lender base", it said.

Several analysts have flagged concerns on profitability of SBI Cards and Payment Services going forward, given its exposure to unsecured credit and worsening asset quality. As of Sept. 30, 77% of the company's funding requirements came from bank loans, which implies a higher cost of borrowing for SBI Cards and Payment Services.

"SBI Cards (and Payment Services) faces highest drag on tier-I CAR and highest dependence on bank funding," Jefferies said in a research note on Friday.

In its September quarter, SBI Cards and Payment Services reported a net profit of Rs 603 crore, up 15% year-on-year from a year ago. Its gross non-performing asset ratio edged higher by 2 bps quarter-on-quarter to 2.43%, registering a consecutive rise in bad loans for the sixth quarter.

SBI Cards and Payment Services does not expect significant impact on cost of funds in FY24. However, it may "increase marginally in absolute terms on an annualized basis", the company said in the filing.