Amid rising hopes of a policy rate cut in CY25, we believe SBI Cards with its fixed rate asset portfolio and higher share of borrowings maturing in <1 year, could benefit on the margins front which has stabilized after a prolonged contraction cycle. However, asset quality has deteriorated meaningfully with GNPA/Stage 2 pool already rising to 3.1%/6.2% of loans in 1QFY25 from 2.4%/5.3% a year ago. Our industry level channel checks suggest that the overall stress build-up in the card business remains elevated, which coupled with the regulatory salvo on unsecured loans could hurt business growth. This has already reflected in SBIC’s slower card acquisition (<1mn in 1Q) and thus the continued loss in CIF/spend market share. Factoring slower growth and higher charge off amid rising NPAs, we expect SBIC to report sub-optimal RoAs at 3.6-4%.
OutlookGiven the lower Tier I capital (16.8%) following the increase in RWA by RBI, SBIC also needs to raise capital sooner than later. We reiterate REDUCE on the stock with a TP of Rs700/share, implying 3.7x Sep-26E ABV.
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