What will it take to restock SBI Cards? | Rare Techy

As interest rates rise, the cost of funds increases for the credit industry. As the loan book of SBI Cards is less than 12 months in nature, it works against the company.

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“Their borrowing from banks is primarily tied to treasury bills and repo rates. We have seen a 190 basis point increase in the repo rate since May and treasury bills have increased significantly at the short end of the yield,” said Abhinesh Vijayaraj, director, equity research, Spark Capital Advisors (India). Even if the cost increases. The funding is not a surprise, it is worse than what Spark had estimated three months ago, Vijayaraj said. SBI Cards management noted that NIM collection is expected to remain high as cost of funds.

What adds to the frustration is the lack of performance. In CY22 so far, SBI Cards stock has declined by almost 13% against positive returns of 2.49% in the Nifty 50 index.

“Borke has not done well due to continued fierce competition, as other banks such as HDFC Bank, Axis Bank, and Federal Bank are trying to capture market share. In addition, the trade discount rate (MDR) is still continuing,” he said. Akshay Ashok, research analyst at Prabhudas Lilladher Pvt. Ltd.

The stock may also lose due to the presence of bank stocks in outstanding valuations. The ratings of public, regional, and tier 2 private banks have seen a sharp improvement in equity returns, driven by lower credit costs and credit growth in line with top banks, it said in a report on October 28. . . “We have also seen this underperformance in some of the most expensive stocks with similar characteristics, such as HDFC Bank and Bajaj Finance,” the Kotak report said.

Due to the rapid pace of digital adoption, the credit card industry will see higher growth and profitability. SBI Cards, the only listed company in this space, is a likely beneficiary. However, the above-mentioned concerns undermine this advantage that SBI Cards have. In addition to improving NIM, a better loan mix is ​​critical for higher interest rates and net interest income. In short, a lot needs to fall into place for SBI Cards stock to see a meaningful recovery.

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