4QFY21: Lower-than-expected advances yields drove the PAT miss; credit costs in line with expectations. Gross stressed loans (including restructured loans) declined sequentially (11% now vs 15.6%); net stressed loans at 4.5%. Maintain ‘buy’ and unchanged target price of Rs 1,155; medium-term opportunities outweigh near-term risks.
4QFY21 – PAT increased 110%; credit costs remained elevated: In 4QFY21, SBICARD reported PAT of Rs 1.8 billion (up 110%), which was 32% below HSBCe. The miss was driven by lower-than-expected advances yields. Total income (net interest income plus non-interest income) increased by 2% YoY (4% below HSBCe). However, higher opex (up 5% YoY) led to operating profit declining by 1% YoY. Credit costs remained elevated at 11% (annualised) vs an average c12% in the previous four quarters (and lower than the 13.7% in 4QFY20).
The pool of stressed loans declined: Potential stressed loans declined to 11.1% of receivables vs 15.6% in 3QFY21. Of these, the gross NPAs ratio (including restructured loans overdue by more than 90 days) increased to c5% of receivables (vs 4.5% q-o-q). Loans under RBI resolution (RBI-RE) declined 48% QoQ to 4.9% (vs 9.1% QoQ). The reduction in the RBI-RE book was on account of recoveries (1.7% of loans) and slippage into NPAs (2.7% of loans). About 80% of the RBI-RE book (not classified as NPAs) is overdue by less than 30 days. Credit costs remained elevated at 11.1% (vs 10.4% QoQ) but were lower YoYy (13.7% in 4QFY20).
Total provisions stood at 6.6% of receivables. Thus, net stressed loans stood at 4.5% of loans (vs 7.6% QoQ). We expect average credit costs of c8% over FY22-23e.
Online retail and new categories drive spend recovery: Card spend was up 11% YoY but new card acquisitions were down 8% YoY. Both retail and corporate segments saw spend recovering to normalised levels. Online spend in non-travel categories (up 35-50% vs pre-COVID-19 level) are driving growth. The share of revolver loans continued to decline from 38% (pre-COVID-19) to 28%. Thus, the decline in interest yields more than offset the benefit of reducing funding costs.
NIM, therefore, declined to 13.2% (vs 14.5% in 3Q and 16.6% in 4Q20). Furthermore, higher opex growth (up 5% y-o-y) kept operating profits muted (down 1% y-o-y).
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