SBI Card seen as the biggest loser post-RBI's risk-weight increase; Incred sees 19% downside

SBI Card share price: The brokerage firm InCredit Equities pointed out in its report that while private banks will see an impact of around 5 per cent of the net loans, SBI Card will see a 100 per cent impact.

In the last one year, shares of SBI Card have given a negative return of 7.5 per cent. Representative image. Source: Unsplash

SBI Card share price: Since the RBI's ruling pertaining to consumer loans, the SBI Card share price has inched lower by 8 per cent. This is considering Friday's low price of Rs 735.55.

For the unversed, the Reserve Bank of India (RBI) last week increased risk weights on consumer credit, which apply to both lenders and NBFCs as well as credit card companies. Through the directive, the apex banker has tried to curb the high growth in the unsecured loan category. The move has increased the capital requirement for such loans and thus increased the cost of lending such unsecured loans to lenders.

So, while the festive season provided a boost to credit card spending in the country, which logged a historically high level of Rs 1.79 trillion (+37.9 per cent yoy/+25.4 per cent MoM), the RBI's action is seen to be detrimental for SBI Cards and Payment Services.

The brokerage firm InCredit Equities pointed out in its report that while private banks will see an impact of around 5 per cent of the net loans, SBI Card will see a 100 per cent impact. The credit card company, in fact, is seen to get a hit on its margins as well as lose market share.

"As regards borrowing from banks, SBI Card is again the most impacted, with nearly 77 per cent of its borrowings from banks, which may become expensive in the coming quarters," the report added.

There is also a view by the brokerage that the company will manage its market share dominance in cards in force (CIF) through increased penetration in Tier-2 cities. Nonetheless, as the cost of funds rises, it will have an impact on the lender's issuance of credit cards. Moreover, given its premium valuation, the brokerage has reduced the rating on the counter to 'Reduce' from the previous 'Add' rating. Also, the target has been slashed lower to Rs 600 from the earlier Rs 1,000.

In the last one year, shares of SBI Card have given a negative return of 7.5 per cent.

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