Money & Banking

Disappointing Q2 net profit: SBI Card’s shares correct on asset-quality pressures

K.R. Srivats New Delhi | Updated on October 23, 2020

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On Friday, stock recovers from low of ₹766.1 to close at ₹805 on the NSE

A sharp spike in bad loans in the second quarter of this fiscal, coupled with expectations of continued pressure on asset quality, pulled down SBI Card’s shares on Friday to close at ₹805 per share on the NSE. This was substantially down from the ₹911 high the stock had hit on October 21 and the close of ₹852 on Thursdaywhen the results were announced.

However, Friday’s close of ₹805 was higher than the day’s low of ₹766.10, implying that there may have been some bottom fishing at those low levels, say analysts.

Net profit falls

The country’s largest pure play credit card issuer’s net profit declined 46 per cent in July-September to ₹206 crore (₹381 crore), weighed down by rise in provisions and bad loans.

The sharp increase of 162 per cent in bad debt expenses to ₹862 crore in Q2 from ₹329 crore for the same quarter last fiscal is a clear pointer that thousands of its cardholder customers have skipped their payments, largely due to people’s financial health getting affected from lockdown from March 25, say analysts.


SBI Card’s Gross Non Performing Assets increased 196 basis points to 4.3 per cent as of end September 2020, from 2.33 per cent in same quarter last fiscal.

The bottomline performance was weighed down by additional management overlay provision (mainly due to Covid) of ₹268 crore for the quarter under review, taking the overall provision as of September 30, 2020, to ₹758 crore. SBI Card’s total income for the second quarter this fiscal stood at ₹2,513 crore against ₹2,376 crore in same quarter last fiscal. Total income in the first quarter this fiscal stood at ₹2,193 crore.

Commenting on the under performance of SBI Card’s stock post Q2 result announcement, Deepak Jasani, Head of Retail Research, HDFC Securities, said: “There were a couple of factors behind the fall. One the stock was anyway highly valued ahead of the results on P/E or P/BV basis. Second, the deterioration in asset quality in Q2 FY21 is more than what people had expected. About 10.6 per cent of their book is now under stress (NNPA + restructured accounts), which is not a small number. Moreover, it seems they may have to make further provisioning of about ₹600 crore in each of the next two quarters towards bad debts if the recoveries from the stressed accounts dontstart in a big way. It remains to be seen if this fall in share price will be temporary for a few days or whether it will remain subdued for a few weeks ahead. We had a target of ₹ 797 for the stock and we don’t intend to raise it after Q2 results.”

It maybe recalled that the SBI Card management had refrained from making Covid-19-related provision in the first quarter as it did not foresee any severe deterioration in asset quality. However, in the current quarter, they have changed their stance and contingent provisions were created for ₹268 crore for Q2 and total contingent provision as on date ( including the one created in March quarter this year) stood at ₹758 crore, said a post Q2 results conference call update from Nirmal Bang Retail Research.

SBI Card had while closing books for the March quarter last fiscal provided ₹490 crore towards management overlay provision (Covid-19 related impact).

Published on October 23, 2020

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