SBI Cards and Payment Services’ second-quarter numbers, reported on Thursday, reflects the worrying impact of COVID-19 on unsecured loans.
SBI cards reported that its gross non-performing assets (NPAs) rose to 1.4 percent in the April-June quarter to 4.3 percent in Q2. That is a huge spike in bad loans.
That’s not the real shocker. The company has not classified any account which were not declared NPA as of August 31, 2020, as NPAs, following a Supreme Court (SC) interim stay. On September 3, the SC had said: “Accounts not declared NPAs till August 31 are not to be declared NPAs till further orders."
If that portion is accounted for, the company's gross NPA would have risen to 7.46 percent. That means, in reality, the gross NPAs of SBI Cards has skyrocketed to 7.5 percent from 1.4 percent on a quarter-on-quarter basis.
Credit cost increases
The gross credit costs of the firm for the first half of the financial year 2021 have spiked to 11.3 percent from 6.9 percent in the comparable period in the previous fiscal year.
Credit cost refers to the cost of borrowing of a company. The credit cost in the second quarter is at 14.6 percent, compared with 5.9 percent in the year-ago quarter.
About 57 percent of the company’s borrowings have come from bank lines, while 28 percent through debentures and 15 percent through Commercial Papers.
‘Worse than expected’
Bankers and analysts said that the sharp jump in NPAs are on account a combination of factors-- the COVID-impact and the SC’s interim order. “An increase was expected but this is much worse than one thought,” said an analyst.
Unsecured loans are, typically, highly vulnerable in an economic downturn. These loans could turn into major pain points to lending institutions if the COVID impact persists, said a senior credit rating agency officials on condition of anonymity.
“All depends on how long the pandemic impact stays,” said the official.
COVID-19 has led to major income losses as companies resorted to layoffs or salary cuts. Even self-employed individuals witnessed a significant dip in their cash flows because of the pandemic. The SC’s interim order has helped to partly hide the exact impact on the books.
About 78 percent SBI Cards borrowers are salaried while 22 percent is self-employed. It is learned that the company has seen much of its NPAs coming from the self-employed segment as COVID affected cash flows, causing defaults.
The economic growth is projected to contract sharply in this fiscal year on account of COVID-19. The RBI expects the GDP to contract 9.5 percent while the International Monetary Fund (IMF) projects a10.3 percent fall in 2020.
Most businesses have suffered hard as customers have postponed their discretionary spending due to the COVID situation.
Q2 net profit falls
In Q2 FY21, SBI cards posted a 46 percent fall in net profit to Rs 206 crore over Q2 FY20. Total income increased by Rs 137 crore, or 5.7 percent to Rs 2,513 crore for Q2 FY21, from Rs 2,376 crore in Q2 FY20. The management made a provision of Rs 268 crore in Q2 of FY21. Provision refers to money set aside to cover likely losses.
Total gross advances (credit card receivables), as of September 30, 2020, stood at Rs 23,978 crore, against Rs 23,038 crore as of September 30, 2019. The company’s net worth, as of September 30, 2020, was Rs 5,949 crore as against Rs 4,388 crore as of September 30, 2019.
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