SBI Cards DRHP is actually a gold mine for understanding payments landscape of India and throws some interesting insights about why credit card industry is one of the most lucrative business in financial world! A thread.
There are total 74 players offering credit cards in India. But like most industries, it's heavily dominated by 4 top players - HDFC B, SBI Cards, ICICI B & Axis B. These 4 top players have combined market share of 72% by number of Credit Cards & 66% by Credit Card spends.
HDFC Bank is the market leader and has maintained its market share in the number of outstanding credit cards at
approximately 27% over the years, followed by SBI Card at 18%, ICICI Bank at 14% and Axis Bank at 13%.
approximately 27% over the years, followed by SBI Card at 18%, ICICI Bank at 14% and Axis Bank at 13%.
Credit card players use various distribution channels such as Banca (selling to existing bank customers) & the
open market to acquire customers. Banca channels involve leveraging the bank’s existing customer base. Bulk of sourcing done by top 3 pvt banks is to their own customers
open market to acquire customers. Banca channels involve leveraging the bank’s existing customer base. Bulk of sourcing done by top 3 pvt banks is to their own customers
SBI Cards has presence in 3,009 open market points of sale across India. In addition, their partnership
with SBI provides them with access to SBI’s extensive network of 22,007 branches across India, which enables them to market their CC to SBI’s customer base of 436.4 million
with SBI provides them with access to SBI’s extensive network of 22,007 branches across India, which enables them to market their CC to SBI’s customer base of 436.4 million
SBI cards source 55% of their CC from SBI's customer base. 45% of their credit card applications were decisioned by their credit decision engines
without human intervention.
without human intervention.
Average annual CC spend is around Rs. 1.3 Lakh. Compare this with average per capita GDP of Rs. 1.1 lakh for FY19
Average CC transaction is of around Rs. 3300
Average outstanding per CC is around Rs. 25-30K
Average outstanding per CC is around Rs. 25-30K
All CC companies wants you to roll over or revolve their CC payment, convert to EMI or take loan on their CC. Interest income contributes to 50% of total revenues. Fees from spends (interchange fees) only contributes 25%.
Bulk of remaining 25% of revenues is contributed by over limit fees, late payment fees, cash withdrawal fees, cheque bounce charges. Only a small portion of total revenue is from annual card fees. Explains why all CC sales call start/end with - "sir this is a life time free card"
Fees earned on spends (or interchange fees) is a percentage of the merchant discount rate (“MDR”) which goes to the issuing bank. This is usually approximately 75% to 80% of the overall MDR. Explains why no one wants to put up POS machines.
Private consumption forms the biggest portion of the GDP basket, at approximately 43.0%. Private Final Consumption Expenditure is around Rs. 84 trillion currently and expected to go up to Rs. 113 trillion by 2024. Currently 5% of this consumption is comes through CC
Indians are increasingly spending more on discretionary items, such as dining, entertainment, vacations
and luxury goods, and less on non-discretionary items such as food, shelter and education
and luxury goods, and less on non-discretionary items such as food, shelter and education
Currently, India has one of the largest young populations in the world, with an estimated median age of
approximately 28 years as of calendar year 2020. As much as 90.0% of India’s population will still be below the age of 60 by calendar year 2020
approximately 28 years as of calendar year 2020. As much as 90.0% of India’s population will still be below the age of 60 by calendar year 2020
37.0% of India’s population has been
estimated to be between the ages of 30 to 59 by calendar year 2020, which fairly represents the working age
population.
estimated to be between the ages of 30 to 59 by calendar year 2020, which fairly represents the working age
population.
In-spite of young population, India’s overall credit penetration in the economy measured by its domestic credit as proportion of GDP is one of the lowest as compared to other countries
Unsecured loan of the industry is only around Rs. 5 trillion - with 73% contributed by Personal Loans, 22% from CC & only 4% from consumer durable loans.
CC industry's fortunes are closed linked with that of e-commerce industry. Current e-comm industry in India is around Rs. 3 trillion. As e-commerce is set to explode in India, so are expectation around CC spends/outstanding
for every on-roll staff there are 10 outsource staff enrolled to carry out sales, customer service, collection and operations job.
Some other insights disclosed from SBI cards which can be used as a proxy for other players
a. 14% cards are Premium cards (annual fee >1499)
b. Rs. 10.5 k as avg. income per CC
c. Rs. 83 k as avg. CC limit
d. 15% accounts are new to credit
a. 14% cards are Premium cards (annual fee >1499)
b. Rs. 10.5 k as avg. income per CC
c. Rs. 83 k as avg. CC limit
d. 15% accounts are new to credit
e. 86% card holders are salaried
f. 55% accounts are 30 day active
g. 67% accounts are 90 day active
h. 40% of total card spends was online spends
j. Net Interest Margin of 15.3%
f. 55% accounts are 30 day active
g. 67% accounts are 90 day active
h. 40% of total card spends was online spends
j. Net Interest Margin of 15.3%
Lastly the Return on Assets and Return on Equity are juicy beyond comparison. These ratios make it a deserving candidate for a 14x P/BV
Cost to Income - 57%
ROA - 6.5%
ROE - 36%
Cost to Income - 57%
ROA - 6.5%
ROE - 36%
A lot of you asked me about PDF link of the SBI Card DRHP. Apologies for not sharing it earlier. Here it is.
axiscapital.co.in
axiscapital.co.in
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