Ladies and gentlemen, good day, welcome to SBI Cards and Payment Services Limited Q4 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rama Mohan Rao Amara, MD and CEO, SBI Card. Thank you, over to you, sir. Thank you, Yashaswi. Good evening, everyone. I am pleased to welcome you to the Q4 and FY23 earnings call. I really appreciate your presence today. As you would know, while global economy remains uncertain due to many factors, including geopolitical ones still persisting, it seems to be inching towards improvement, with IMF predicting the growth rate bottoming out in 2023 to 2.8% before rising to 3% in 2024. Amidst this, economic activity in India remains resilient. The real GDP growth is expected to be 7% in 2020-2023 as per RBI. Both PMI manufacturing and PMI services remained robust in March 2023 at 56.4 and 57.8 respectively. Aggregate demand conditions remained resilient in Q4. According to RBI's recent consumer confidence survey, consumer confidence continues to improve. Most importantly, the survey showed that household spending was buoyant on the back of higher essential and non-essential spending, and more than a third of the households expect a rise in non-essential outlay over the next year. This is a good sign for consumer demand and industry spends. Apart from its comparative economic resilience during these times, India is also being hailed as a frontrunner when it comes to digital payments. This is true when we look at aspects like innovation in payments, the pace of its adoption among population, and the vast user base. According to a recent industry report, India's digital payments market will increase from $3 trillion - $10 trillion by 2023. Credit cards too continue to rise with digital payments growth rate. Credit card base grew from 73 million in March 2022 to over 85 million in March 2023. This is despite the closure of around 12 million inactive cards by the industry. Card spends have also increased significantly by 28% from INR 1.07 lakh crore in March 2022 to INR 1.37 lakh crore in March 2023, the highest ever monthly spends for the industry. Card spends continue to remain over INR 1 lakh crore for last 13 months, with e-commerce contributing to a significant share in the spends. It is interesting to note that in FY 2023, the industry saw highest ever annual card spends at INR 14 lakh crore+. In FY 2023, the industry saw its highest ever festival season card spends during October at INR 1.29 lakh crore, and a strong winter holiday season added to increased travel spends as well. This clearly demonstrates the robustness of the demand and usage for credit cards. In fact, the past year has been a pivotal year for the industry, with many significant changes to the business model that have set the tone for future of credit card industry. The industry has largely adjusted to and incorporated these in a seamless manner during the past six months and is now ready for the next level of growth. I would like to reiterate my confidence in India's credit card market potential. The significantly under-penetrated market offers ample growth opportunities for all the participants. Let's now look at SBI Card's business overview in FY 2023. I am proud to say that SBI Card was successfully able to navigate through the year and registered a robust business performance, demonstrating the resilient and sustainable business model that we have built over the years. As always, we continue to create value for our stakeholders, and I am pleased to share that we declared an interim dividend of INR 2.5 per equity share for FY23 in the month of March 2023. Throughout the year, we put focused efforts on three aspects, namely strengthening acquisition channels and acquisition quality, enhancing sustainability of the business, and ensuring an engaged and active customer base. As a result, during the course, we have achieved some new benchmarks. We added 5,202 thousands or 5.2 million total new accounts in FY23, which has been the highest ever during the financial year. In FY23, our new accounts grew by over 40%. During Q4, we added 13.71 lakh new accounts at a growth rate of 37% year-on-year. We continue to focus on adding about 900,000 to one million cards per quarter on net basis. In line, we have added 900,000 cards in Q4. Our cards in force stood at 1.68 crores in Q4 FY23. We continue to be the second largest credit card issuer in the country. Our cards outstanding, in terms of cards outstanding, market share improved by 100 basis points to 19.7% during FY23. Our spends have also seen new highs in FY23. SBI Card saw the highest ever retail spends in FY23 at over INR 2 lakh crores, which is a 41% increase over FY22. Our card spends in Q4 stood at INR 71,686 crores. It is 32% year-on-year growth, and this is the best ever quarter in spends at SBI Card. Out of this, retail spend contributed over INR 55,500 crores with 30% year-on-year growth in Q4 FY23. The best quarter for us in retail spend. It is noteworthy that our retail spends per card has also increased by 7% year-on-year in Q4 FY23. On that note, I am pleased to share that we are number two position in the spends market share. During Q4 FY23, spends growth on quarter-on-quarter basis have been driven by growth in categories like departmental stores, health, utilities, education, consumer durables, furnishings and hardware, etc. Travel, entertainment and restaurants category also saw good growth. In fact, Q4 FY23 has been the first quarter in last three years to surpass the travel spends momentum seen in Q4 FY20. Online retail spends continued to grow in FY23, reaching a 55.9% share of total card spends. Our continued robust business momentum also helped us register healthy financials in FY23. Let me share some key ones. Our total revenue to date to INR 14,286 crores and has grown at 26% year-on-year for the year FY23. Our revenue from operations has seen 28% year-on-year growth in FY23. Our receivables continue to increase steadily. Receivables at INR 40,722 crores have grown by 30% as compared to INR 31,281 crores in March 2022. The share of interest earning assets has improved to 61% in March 2023 as compared to 59% in March 2022. In FY 2023, SBI Card has achieved a PAT of INR 15,258 crores, registering a significant 40% growth over FY 2022. SBI Card undertook some significant initiatives on the product side during FY 2023. We further expanded our core card portfolio and added CASHBACK SBI Card, a travel-rich product. Since its launch, the card has seen very encouraging response from the customers. We launched a new co-branded card, Aditya Birla SBI Card, in partnership with Aditya Birla Finance. We have been working on several initiatives in strengthening our acquisition channels and enhancing customer experience. Technology has been playing an important role as we bring these to fruition. I'm talking about SBI Card SPRINT rollout. SBI Card SPRINT is an end-to-end digital acquisition channel and has been a significant initiative to be launched during the year, which has made enrollment for customers easier, seamless, faster and instant. This allows the customers to get a card in just 5-7 minutes. It's a KYC enhancement. We have launched several initiatives to digitize the KYC process across the customer journey to enhance the security and convenience for our customers. Multiple modes, the biometric eKYC, DigiLocker, video KYC, et cetera, are used as per customer needs. It is noteworthy many such efforts are helping us in rationalizing the cost structure, thus bolstering the business fundamentals. We are excited with the opportunity from the linkage of RuPay card with UPI. Access to the large merchant and hence customer base is good for the industry players. We plan to roll out the SBI RuPay linkage over the next few months. Speaking of business viability, it is important to note that a higher customer spends active rate is vital. At SBI Card, our spends active rates have always been healthy at 50%, including in FY23. We continue to have a good strength and highly capable senior management team to lead the company towards new phase of the growth journey. I am proud to share that this year too, our all round efforts have been duly recognized. SBI Card has earned 83 different recognitions in different areas. For instance, ET Best Brands 2022 award, CEBI Award for customer service, and Golden Peacock National Training Award for excellence in training and development initiatives. Coming to the financial performance in Q4 FY23, our total revenue in Q4 has been at INR 3,917 crores, registering a growth of 30% year-on-year. In Q4, our revenues from operations have been at INR 3,762 crores with 32% year-on-year growth. In Q4 FY23, our PAT grew at INR 596 crores, registering 8% year-on-year increase and 17% quarter-on-quarter growth sequentially. In FY23, as expected, owing to consecutive interest rate increases, our cost of funds has also witnessed a significant increase. As we communicated last quarter, our cost of funds increased by 13 basis points in Q4 over Q3. We were able to minimize the impact on NIM, and our NIM for Q4 is only 5 basis points lower at 11.5%. Our cost to income for FY23 was at 58.9%. We saw an improvement in cost to income ratio to 58.1% versus 61.9% in Q3 FY23, with expense related expenses being lower this quarter. On asset quality, our NPA increased marginally in Q4. GNPA stood at 2.35% as of Q4 FY23. Our gross credit cost increased to 6.3% in Q4. We revised the model estimates this quarter, which I'm talking about ECL model. We revised the ECL model estimate this quarter, which resulted in a one-time impact of 20 basis points on the credit cost. Adjusting for that, our gross credit cost within the range that we have shared always, 5.8%-6%, that is 8.2%. We have identified a sub-segment from the legacy portfolio that has contributed to higher stages in last few quarters, impacting the NPA and the write-off numbers. We have taken portfolio action and expected that action taken will be able to address the issue. The new acquisition from 2023 onwards is beginning as per expectations in terms of delinquency. Our profitability ratio also continues to improve. In FY23, our return on average assets increased to 5.6% versus 5.4% in FY22. In Q4 FY23, it has been at 5.4%. During the year, our return on average equity has also seen an increase, reaching to 25.3% versus 22.8% in FY22. In Q4, ROE has been at 24.6%. In conclusion, India remains resilient and the domestic consumption remains aggressive. At SBI Card, as always, we have maintained an agile approach and have taken well-calibrated measures to ensure that the company remains on a sustainable and profitable growth path. Interest rates remain elevated. However, these have been factored in and are likely to stabilize from here. With such growth momentum and most key policy measures too, now largely in place, the credit card industry is likely to witness sustained growth momentum. I would also like to share that SBI Card will be celebrating 25 years of its immensely successful journey. We look forward to celebrating this with all our stakeholders. While we look at the last 25 years' journey with pride, we believe that the future is much more promising. Now we are open for the questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Mahrukh Adajania from Nuvama. Please go ahead. Yeah, good evening, sir. My first question is on credit costs. You already explained that there was a one-time impact of changing ECL assumption. If you could elaborate on the change. Also in general, for the industry, revolve rates have come down a lot post-COVID. Why are credit costs still sticky? Is this good for them to come down? Because if revolves are declining so much, then credit costs should also be lower, is the general sense. I think this one-time adjustment, with an impact of 20 basis points, is in terms of strengthening the ECL model, where we test the model and based on the current economic factors, macroeconomic factors, we further modify the model, which has resulted in a around 24 kind of impact in a quarter. In annualized terms, it works out around 20 basis points. In fact, if you adjust the credit cost for the 20 basis points, it's around 6.1%, which is at a higher end of the spectrum what we have given. I talked about a broad range of 5.8%-6.2% credit cost, which takes into account the current composition of the assets, the current ratio of revolver, transaction, EMI loans, current economic conditions, current, the kind of environment in which we are operating and the recovery culture also. We are at a higher end of the spectrum. As I communicated earlier, we have identified the segment very clearly. We have been taking portfolio action. We are expecting that credit card credit costs will have a trajectory of coming down in the next two quarters. It will come down. Okay, sir. Thank you so much. Thank you. We have our next question from the line of Karthik Chelappa from Indus Capital Advisors, Hong Kong Limited. Please go ahead. Yeah. Thank you very much for the opportunity. Am I audible, sir? Yeah, yeah. Perfect. Okay, great. Two questions from my side, sir. Over the last few quarters, we have seen a very good recovery in our SBI Card volume share, which is at about 19.7%. If I look at the difference between our SBI Card volume share and spend share, which is almost close to 1.5% now, that's almost at a 9-10 quarter high. Given that we've got really good momentum on the volume side, why is it not reflecting in spends yet? Is it a reflection of the quality of customers that we are getting, either geography-wise or self-employment or the salary-wise? At what point of time do you think this difference narrows down? Well, as a responsible trading and maybe Sharfudhin can supplement. One thing is you know the spend comprise both retail and the corporate spend. We have seen the kind of volatility in the market share in terms of the spends. Whenever the corporate card spends move from one place to another, it has a significant bearing on the spend share. Being mindful of this and also being mindful of the fact that if it's only top line, it doesn't add much to the bottom line, but it can potentially bring it in, we have been playing a very calibrated game here. That's the reason our corporate card spend actually accounts for a certain range only. It's 22%-23% of our overall spend. With regards to new issuance, which you have also commented about the robustness in the volume, as you know, it takes some time for the customer to start using the limits fully. They may start with a smaller transaction to begin with, but the moment they experience the benefits of using the card, they will start using it for the discretionary spends, et cetera, and then you can see a larger. In as much as the volumes have come only post COVID, after 2020, I think there is a catch-up here, in terms of, being equal to the portfolio. It will take time for the new vintage. Anything more to add there, Rashmi? Karthik, in the new customer acquisition that we are doing these days because of the RBI guidelines, you have to keep the customer active and if the customer is inactive for more than 12 months, in any case that customer gets purged off your portfolio. What we are seeing is that all the new customers that we are getting, their average spend actually is coming out quite better and higher than the earlier vintages that we are getting at the same point of time. Which is a good sign. The second thing which is also visible in the portfolio is that these customers are their active rates are also higher in terms of let's say a two-month, three-month, four-month active rates. They are also higher. We don't see an issue there. As Tarun was mentioning, the issue on the market share primarily is because of the mix that we are targeting of retail versus corporate spend. There will be some months which will target a higher corporate versus retail mix. It will, the shares may look very, very different. When we check because there are other sources through which we check, we see that average retail spend of ours is similar to the industry level. Additionally, just to add, even on the slide number eight in the deck, you will see that our Q4 FY22 retail spend per average card was 144,000, and it's gone up to 136,000 for Q4 FY23. There is an increase that you can see already in the retail spend per average card. Since a lot of sourcing for us has happened in the last 1.5 years, there is a bit of catch-up as well which will start reflecting, but already we are seeing the benefit of the spend going up in metric on spend per average card. Got it. This is very useful. My second question is basically on the new RBI direction on pre-sanctioned credit lines through banks using API. Now, although the details are yet to be unveiled, is there any thought process on how it's going to be impacting credit cards? As you rightly said that there are guidelines still fully yet to come, these kind of products are already available. People were already giving because, UPI is essentially in a way if you see for a debit card to make a transaction online, that model is there and, only limit on the bank account or debit cards were always there. We will also see as to how it, this, goes further. This is just a different version of the earlier product which was available. Got it. Okay. That's it from my side. I'll come back in the queue for more questions. Wish the team all the very best for the next year. Thank you. Ladies and gentlemen, in order to ensure that management is able to answer queries from all participants, kindly restrict your questions to two at a time. You may join back the queue for follow-up questions. We have our next question from the line of Rohan Mandora from Equirus Securities. Please go ahead. Good evening, sir. Thanks for the opportunity. Just wanted to understand the nature of slippages that have happened in this quarter. What is the vintage of the customer and is it coming from salaried or self-employed if some color around that? Second is that if you look at the originations, they have picked up in the self-employed category in the last two to three quarters. If you can touch upon what is the customer profile of these customers and what is the origination channel for this. Lastly, if you could share some guidance on NIMs and cost of funds for FY 2024. Thanks. I think with regard to the vintage, we did see, as I clarified in my speech as well, the new vintages are holding good in terms of whatever expectations we had in terms of a very broad delinquency band and a EPL kind of consumption, they are behaving normally. There's no issue around that. In the legacy vintages, we did identify a small customer base, which was showing a higher delinquency. Obviously that was resulting in higher flow rates and then higher NPL, which was leading to higher write-off. This segment was identified. There is nothing can be pointed out. This is all across in terms of geographies and the nature. We are taking portfolio actions that are required. We are confident that actually, as the retail for the recent vintage increases and as we are, the actions taken on this particular segment shows the results, actually the credit card will trend well. In terms of cost of funds, I'll ask Rashmi to go. On the cost of funds, we saw one, post the actions taken in quarter three, which obviously resulted in the cost of funds going up in quarter four. There has been one more action by RBI, which is a 25 basis point increase in February. On account of that, we do expect that the cost of funds for quarter one FY24 will be higher, by about 10 -1 5 basis points. It seems from the statements that RBI has made so far, as Vijit mentioned, Bigalanan mentioned the pause and not a pivot, I would not expect any further rate hikes from the RBI. If that is the case, I would expect that the cost of funds will stabilize for quarter two and maybe start to inch down in the second half of the year. On the NIM therefore, the corresponding impact will be that while we've been able to maintain the NIMs in quarter four, very marginally from quarter three. We do expect that the NIMs to stabilize over quarter one and quarter two, and any benefits coming in from the cost of funds and also any action that we have been taking, which we took in quarter four and will be taking further in quarter one on the customer fees will help us strengthen the NIMs in the second half of the year. Sure. Just want to follow- up on the first reply. On the earlier vintage customers where we are seeing delinquencies, are these pre-pandemic originations? Just to confirm. Also on the self-employed originations, if you can just touch upon on that question as well. Yes, the portfolio that Mr. Rao has mentioned is a pre-pandemic portfolio. It's a subsegment of some one segment that we have identified which was originated pre-pandemic. Sure. It's a mix. I think your question was, is it self-employed. The answer is it's a mix of self-employed, salaried. We've taken funding the portfolio action based on whatever further sub-segmentation that we can do on that. Sure. Thanks. Thank you. We have our next question from the line of Bhavik Dave from Nippon. Please go ahead. Yeah. Hi. Good evening, sir. Hope I'm audible. Two questions. One is on your cost of acquisition in the sense that when we see our incremental cards that we are adding, the last four, five quarters we've been adding cards in the tier three plus, tier three, tier four regions. Just want to understand, is the cost of acquisition very similar when we do metro acquisitions versus tier three, tier four acquisitions? That is point number one. Point number two is when we see quarter to quarter, the operating expenses haven't fallen that we had seen last year same time. What would be the logic or what has led to this cost of other operating expenses being flat? Within that, the fees and commissions have increased, like, by 10% quarter on quarter. Just want to understand what exactly is happening there. To that, just want to understand going ahead when operating expenses come out lower as a percentage of our income considering we are doing this online channel that we've opened up incrementally. Just want to get a sense on that. Thank you. Cost of acquisition on a year-on-year basis, we have seen a downward trend, exactly 10% plus downward trend that we have seen in the cost of acquisition. Because you mentioned metro versus Tier 3, Tier 4, while we do not look at it from that perspective, but we can tell you that Banca cost of acquisition is lower than open market cost of acquisition. For the natural reasons that in the Banca scenario there is a kind of lead which is available for the customer. Apart from this, there is a constant effort on the digital side of things to bring the cost of acquisition down. As going further, as we go more digital and we, as Amit has mentioned that we have launched the Sprint journey, which where you can get the card within five to six minutes in your hand. As more number of customers pass through that and we are able to generate more volumes there, the cost of acquisition will further trend downward. I think the second part of the question was the operating costs have been flattish quarter-on-quarter. Is that what you're asking? Yes. Last year same time, third to fourth quarter, whether it is, just want to understand if you see this quarter versus last quarter, the number of cards that we added, the gross additions were lower, right? Like one million card versus 900,000 cards this quarter. Just want to understand why are we seeing the cost of other expenses going down quarter-on-quarter? The reason for the cost to be flattish quarter-on-quarter between quarter three and quarter four are certain IT expenses that we've done, certain projects that we have started in quarter four and the cost of that has come in. While you're right that the cost, and as Rishi explained that the cost of acquisition quarter-on-quarter has been coming down, the overall operating cost is higher due to certain project costs taken up in quarter four. Sure. This will now with this, like cost of acquisition going down should like benefit us in FY 2024, right? The costs should not, except our rewards and promotional expenses that we do, except that the other part of the cost structure should like trend flattish or lower, right? Is that a fair assumption? On a quarter-on-quarter basis there can be some variation because in our model of acquisition there is this if we acquire through digital then the cost is very low, but otherwise if you go through manpower there is a set of fixed costs and then there is a set of variable costs. There is usually some amount of variation with, and that happens on a quarter-to-quarter or a month-to-month basis. As an annualized basis we will be trending down. Sure. Last question is out of the 900,000 cards that we added, the online, the Sprint journey, how much is that contributing? Thank you, sir. Yeah, sure. This is the last question. How much is the Sprint journey contributing to the 900,000 cards? How is it trending? That's the last question. Thank you. As of now, Sprint does not contribute much large percentage into it. It's a very small percentage. The reason primarily is that as of now we have kept it only for purely digital and for cashback card customers in that sense. We are slowly integrating it with our partners. As of now the process of integrating it with our co-brand partners is on. One is already done, the other partners are in progress. We also want to integrate this spend journey with our bank card, with the bank card, which you know, along with the internet banking. These are the things which is in progress. Once that happens, more number of customers suddenly can expect and use this spend journey on a regular basis. We expect it to rise rapidly now that we have tested that it works absolutely fine and the customer can be given a card within five minutes. Thank you. We have our next question from the line of Bhavesh Kanani from ASK Investment Managers. Please go ahead. Mr. Bhavesh Kanani? Since there is no response, we'll move on to the next question from the line of Alpesh Mehta from IIFL AMC. Please go ahead. Yeah. Hi, sir. How are you? Yes. Okay, hi. sir, two questions. First is on the yield on loans. We are seeing the sequential improvement in the yield. What has been the key to the personal loan segment? Yes, please use an answer. Can you answer? Yeah, yeah. Just one sec. Can you hear me now? Hello? Yes, go ahead. Yeah. Yeah. Yeah. I'm sorry. Can you try again, please? Since there is no response, we'll move on to the next question from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead. Good evening. Thank you for the opportunity. Two questions. One is, given the fact that the revolvers have are still arranged for, what are the new revenue line items that we are looking at or we want to develop? That's the first. Second is what is the margin contribution difference between retail spend and corporate spend? Thanks. You have to repeat the first question, Shubhranshu. We got the second one. What was the first one? Given the fact that revolver as a proportion is lower and or arranged down, so the interest income is therefore getting mitigated. What are the new revenue line items we are looking at or focusing on which can be incremental to the top line of spend? Right. What are the other line items that you're looking at, revenue line items to enhance the revenue? I think, we have stated in the past that, we will be looking at the revenue optimization through the process. We have various products like a mCASH, Flexipay, we have balance transfers and, subscription on these products are there. We are, of course, we are also drafting a request, so I think to be more complementary also in the message. We are also looking at like what are the other risk mitigants that are available to, expand our base that is into selling these products. That is we have clearly, increased our share of the interest bearing NEA. If you look at overall revolver to EMI, it has increased by 2 percentage points over a year time. This sentiment will continue. of course we will also be looking at the fees and what are all the other ways and means of supplementing some of the revenue lines that got evaporated, particularly after the some changes have come into effect from 1st of October. We did notify the market and the stakeholders. We have introduced a few types of fees. We'll continue to look for kind of revenue to augment our current state. Margin contribution between- Second question is the margin contribution in retail spend and the corporate spend. On the corporate spend, the margin contribution is very minimal because whatever we earn as primarily interchange gets passed back to the customer in the form of a cashback or an offer. On the corporate side, the contribution is fairly minimal. On the retail side, while we get interchange, but we have to give customer reward points, so there is an element there. We also give up to 52 days of credit-free period. These are the two major things. After that, there is a margin which is still left. We also make money from fee and charges, also some interest income. There are multiple other sources of that in the retail scenario there is in case of corporate because it is customer pays 100%, so there is no interest income. Thank you for that. If I can squeeze in one last question. What kind of spend growth are we looking at in 2024 and 2025 next? As per industry sources, we believe that the spend should grow anywhere between 22%-25%. We will try and keep an alpha on top of the industry numbers. Thank you. We have our next question from the line of Alpesh Mehta from IIFL AMC. Please go ahead. Hello. Am I audible now? Yes. Okay. Just two questions, sir. Firstly, on a sequential basis, we are seeing around 30, 40 basis points improvement in the yield. What kind of pricing action you would have taken onto the EMI segment? The mix is largely stable on a Q-O-Q basis. I think as I said in the past, we adopt a kind of risk-based pricing, which permits like a kind of transmission of the rate. Whenever the funding cost increases or whenever the other costs increase, we also can transmit back to the customer. That is the strategy that was adopted. Last quarter when we revised the prices for some of the loan products. I talked about Encash, talked about CPB and other loans. We were able to successfully transmit the rates for the new disbursements because unlike, kind of others in the industry, where the entire portfolio gets reset because they are linked to the extra benchmark. In our case, most of the loans carry fixed rates. We have the opportunity to transmit the rates only with the new disbursements, which we were able to do successfully last quarter. Okay. There is no change onto the revolve yields, right? Revolving yields remains the same? Because I believe we would be at the There is no change in the APR. Revolver remains same and the shape of overall asset also remains same. Obviously, there is no change in the revolver contribution. Perfect. Perfect. Just, the last one. If you can throw some light onto the instance-based fees than the others, because that contribution has gone up sequentially. Any major line item that would have contributed more in this quarter? The instance-based fee, this is Gayatri speaking. Yeah, the instance-based fee was higher, largely because we, if you recall, we reduced the fee on the rentals. We also increased that fee from INR 99 - INR 199 in the month of March. Of course, the impact of that increase is minimal given that the number of days that it was effective for was less. A significant portion of that increase has come from the rental fee. Okay, got it. this was the major contributor. Perfect. Lastly, the 20%-25% increase into the spends growth that you are factoring in, does that include any action on the rental payment side as well? Sorry, the 20%-25%? Growth onto the spend side that the industry is expecting. Since now on the rental there are no revolves and some fees are also introduced on that. Do you expect that to be stable or that could see some drop in the spends growth? No, should not. In between Q3 - Q4, as Rashmi was mentioning, in Q3, mid of Q3, we levied INR 99 as a fee. In March we increased it to INR 199. We have not seen any drop on a month-on-month basis from Q3 - Q4 on the rental spends. While absolute growth might not be similar to industry level growth, but it will still remain stable or marginally. Thank you. We have our next question from the line of Anand Dama from Emkay Global. Please go ahead. Yes, thank you for the opportunity. Firstly on the NPA front, which have gone up quarter-on-quarter and R3 codes also have gone up, but you said that you still provisions, as well. Just wanted to check, like, whether these NPAs have come or the stress has come primarily from the monitorable or the identified stress pools or, this was all of a surprise that basically changed during this first quarter. If you have this, typically do the exercise of identifying the stress, then, is there any tool that you can talk about that you have identified or whatever monitoring. I think you'll have to repeat the question. I think most part of it was lost. Basically, sir, one is that, the NPA flow that you saw during the current quarter where was this basically out of the identified stress pool, or basically this was all of a surprise as we saw in the first quarter? If your question is that the NPA increase that we've seen, is it largely from the identified stress pool that we called out or is it across all the covers? I will, yeah. I talked about the small segment having a higher delinquency fee. It means like you expect a kind of contribution from the legacy portfolio, some new vintages in the team. This segment was identified as a higher propensity to get delinquent. Because we have seen that our recovery efficiency or collection efficiency in that segment, we noticed that it's actually a stress there. That's one of the reasons we have taken some portfolio actions there in terms of minimizing the cross-sell or not offering the cross-sell and other portfolio actions that are available. We have we've taken a few and some more are on the anvil. Again as a part of repetition, the latest vintage is behaving exactly as per our expectation. We expect that these actions will eventually result in a kind of lower credit cost over a period of couple of quarters. Okay. going forward, like, you know, into the first quarter, do you have any kind of stressor that you have identified already? If yes, if you can quantify that. We'll quantify for the next quarter. I think as I said, it's a work in progress, but some of these things will also take time. We are very confident that it will have a downward trajectory. I think the quarter will be a kind of stabilization period before it actually starts evidencing a kind of real drop in the rate. Of course, this one time kind of thing what happened is not expected to repeat in the next couple of quarters because it's mainly model-related adjustment. We are confident that the overall credit cost will come. Maybe it will not cross the upper end whatever we have given. That confidence we have. Actions could take time. Over a couple of quarters definitely it will come down. Thank you. We have our next question from the line of M.B. Mahesh from Kotak Securities. Please go ahead. Hey. Hi. Two data keeping questions and one qualitative question. The first is on to Rashmi. Can you just explain what explains the sharp increase in business development income? How do you account for recovery from previously written-off accounts? Does it go to the non-interest income line or is it adjusted against the write-off? Provision, sorry. The business development incentives are basically the milestones. They're kind of milestone incentives that we get from our partners, which are part of the basically contracted, how to say, slab rates in a way, in terms of the number of cards that we issue, on a particular network and also on the spend that we do on those cards. In a sense, what explains this jump for the quarter? You know, I think the jump is explained basically by the sourcing of cards that we did in quarter three and quarter four, and also the higher spend we saw in quarter three and quarter four. While most of it was seen around December also, but the impact of that has come in in quarter four only, not three. Okay. recovery from written off? Recoveries from written off go into our other income, as bad debts recovered. This gets clubbed under instance basically, yeah? It gets what? Where would you club this income in the non-interest income line? Which line item? It goes into the other income line. If you look at our financial statements, and if you pick up the other income line. Okay. there would be a, The INR 154 crores. -sort of that as bad debt recovery. Okay. The qualitative question, sir, to Dev probably this question. If you look at your card book today, and you look at the, let's say the below prime segment, how is that spend category set of customers kind of, where are they in their journey of recovery post-COVID write-off? Mahesh, after the, let's say customers with vintage, which was pre-COVID, on their spend journey, they have all recovered back. In fact, they had recovered back long, I would say almost one year back, they have recovered back. New customers which we acquired during COVID, they were showing some bit of depressed spend in the year 2021, and it is that catch-up, as Nita was mentioning, which is now happening, and it has, as we have seen that this has happened this year. New customers acquired during this last, I would say 15-18 months are showing very good spending behavior, very good activation rates. As you have been seeing, we have been focusing on more younger customers, where the activity rates are far better. From a spend perspective on an overall basis, I think we have, it's already caught up. There is only one category of spend, which is international spend, where I believe that there is still more opportunity. The balance is, has broadly reached higher than COVID. In fact, from the travel side, we have declared some of the numbers also. This is the first quarter in Q4 after FY20 that we are indexed at almost 140% of what we were in COVID on the travel. Specifically on the- Sorry. In a sense, the choice of spend that they seem to be taking still seems to be overwhelmingly on the EMI side rather than revolve. That journey has still not happened from that segment. I would say that if I look at spend conversion to EMI, if I take out the rental spends, because rental typically is more of a transactor spending in nature. If we take out the rental spends, our spend conversion to EMI, actually that percentage has become higher. That number has gone up compared to what it was pre-COVID number. That trend is fairly visible across segments. When I Okay. About conversion to EMI, it is either at the point of sale or after you have spent it, before payment due date, you have converted to EMI. Thank you. We have our next question from the line of Charles Sisson from Schroders. Please go ahead. Hey, thanks for the opportunity. Am I audible? Not very clear, sir. Can you use your handset, please? Yeah. Am I audible now? Can you just raise your volume please? Am I audible? Very well. Oh, yeah. Yes. Thanks. Just follow up on the cost of fund comment. Basically, you are saying that because of repo hike, last quarter and then the first quarter 24, we will see 10-15 basis points increase in cost of fund. Then after that, because RBI has already paused, we should not see any increase in cost of funds, right? I'm just a bit confused because if I look at historically, when RBI was cutting rates back in 2019 and early 2020-The repo rate bottomed about, you know, 4%, at June 2020. If I look at our cost of funds, it only bottoms about three, four quarters later. There's a timing lag in terms of calculation of, you know, the time when repo paused or bottomed, to our cost of funds stabilized, right? Just wondering why this time, the cost of funds should immediately start increasing, the moment RBI stopped hiking. I thought, you know, 25%, 30% of our funding is from NCD, which should be priced with a delay or lag, right? Your comment is that, the cost of funds, why is it increasing when the RBI has been paused? Why it should not. No. Yeah. Yeah. Why? Because what you guys are saying that second quarter FY 2024, cost of funds should start to increase, right, sequentially because RBI has paused. Yeah. Historically our cost of fund repricing, you know, if I just look at most recent episode where RBI was cutting rates, Our cost of funds, your cost of funds will be climbing, you know, three, four quarters after RBI stopped cutting rates. On the way up, shouldn't there be a, you know, repricing back as well? Our cost of funds should continue to increase a bit even up, even after RBI paused because, you know, some of our funding could be priced with a lag. I'm pulling up the data for the 2008, 2009 that you're telling me about. I've already pulled out the data. Just a few pointers in terms of how do we see how does our portfolio get impacted. Number one, as we've stated in the past as well, that the transmission of any market rate change happens on our portfolio with a lag. What we saw in an increase in the cost of funds in quarter three and now in quarter four and what I'm talking about in quarter one is with a lag. The RBI started increasing rates in April of last year. April 2022 is when we saw the first increase in the repo rate. We didn't see an increase in our cost of funds till quarter three. It was almost after about 7-8 months that we first felt the impact of an increased market rate on our portfolio. The second point as to why did we see it after six months and why are we not immune to it for another 12 months, 24 months is because our liability portfolio largely comprises of short-term borrowings. That typically again to do with the kind of assets that we have. If you look at the asset breakup, almost about 39 odd percentage is transactor. There is a revolver percentage which again is short-term in nature. We don't really have too many chronic revolvers. In order to have an ALM and in order to have a match funding position with respect to assets and liabilities, we've also been borrowing short. Which is why every six months, every nine months, when the portfolio comes for a repricing is when we're actually able to feel the impact of the market rate. Those are the two characteristics that I wanted to first lay out. As I said earlier, we've seen another rate hike in February. The impact of that will be felt as our portfolio comes, whatever portfolio, whatever amount of our portfolio comes for repricing in the first quarter. We've done some modeling around that, and we expect that that increase is going to be 10 - 15 basis points. I called out earlier that if there are no further rate hikes, we should see the cost of funds stabilize over the next two odd quarters. If the cost, if the market rates start to trend down from now onwards till the third quarter of this financial year, we will then see the impact of cost on the cost of funds where it starts to come down towards the end of this financial year. You're absolutely right. It is with a lag. Because our portfolio gets repriced almost at about a six to an eight-month kind of a frequency, this is how we felt the impact of the market rate. Thank you. Ladies and gentlemen, request you to restrict your question to only one at a time. You can join with the queue for follow-up questions. We have our next question from the line of Pankaj Agarwal from Ambit Capital. Please go ahead. Yeah. Hi. Good evening. ma'am, if I look at your cost of funds, it used to be 8% before COVID, and the policy rates was almost similar to the current year. It used to be in the range of 8%- 8.5%, right? What has fundamentally changed in your funding profile over the last 3-4 years so that your funding costs has remained, you know, below pre-COVID levels? I don't think we've mentioned that we're gonna go. We've said that the rates are gonna go up. Just to speak around, with the policy rates remaining more or less at the same level, how are we confident about the trajectory being only limited to increase being limited only 10-15 basis points? I think if you're comparing the situation three years back or four years back, I think the share of long term in our overall funding has increased over a period of last four years. From a 9%-10% - 15% to now 30% kind of overall. That probably is the kind of reason we feel it's rate increases. We have been steadily increasing. Of course when the rates are freed up, obviously we are looking at what is the right timing and what is the right instrument. Our endeavor is to continue to increase it in a meaningful way, in a very calibrated way. As to inflate. Of course, as Rashmi has also said, like, we want to do the match funding and we want to get the opportunity of pricing it actually at the lowest rates whenever the market rates dip. That's the fundamental difference between a four year back scenario and the current scenario. Basically, your duration of your liabilities have come down over the last three quarters, right? Duration of liability increased because long-term share, long-term liability, like a 10 series of three years or otherwise, subordinate bonds or kind of thing maybe after 10 years sort of rise. liability did increase actually over a period of time. Then, I mean, if that is the case, don't you think then your funding cost can go back to 8% at some point of time despite the current policy? The reason I'm asking that. What we also need to take into account is what Mr. Rao just mentioned, that the increase in our long-term funding has happened in a scenario where the rates were lower. We've been increasing our long-term funds post-COVID, and post-COVID the rates were low and we are benefiting from that. Okay. Okay. Basically you logged in a lot of funds at a very lower rate and they are long in duration. Yeah. Is this. No, reason I'm asking this question is that generally, you know, there is a tenure premium, right. Keeping everything else constant, if your tenure of liabilities are high, your cost of funds will be high. And as I said, at a similar repo rate, even 8% cost of funds three years back or four years back, right. You know, ideally if your tenure premium, your tenure has gone up, then at some point of time at the similar policy rate, you know, your cost of funds can move up to 8%. Yeah. I mean, I think you'll have to go back and look at the numbers there. I mean, I do have the numbers for 2018, 2019. They are at about 7%. You also will have to look at the other things besides the repo rate, the credit premium, etc., as well as to how were the credit premiums at that point in time for a AAA rated entity compared to where it is right now. We'll have to look at all of those factors. As I said earlier, that our modeling shows another 10-15 basis points stabilization, and beyond that we'll have to see as to how the market reacts. As the credit premiums go up, obviously, even if the benchmark rates remain low, the credit premium will come and impact the cost of funds for SBI Card as well. Okay. Fair enough. Thank you. Thank you. We have our next question from the line of Anand from HDFC Mutual Fund. Please go ahead. Hello, ma'am. Can you hear me? Yeah. Yes. Ma'am, I just want to understand on the spend-based fee income, how should we look that going forward? As most of the spend category where the MDR are generally higher are opening up and we are seeing traction on that. Should we expect the spend-based fee income to grow higher than the overall spend next year? How should we think about the spend-based income? Mr. Anand, please mute your line because there's disturbance coming from your line. Hello? On the spend, yeah. Yeah. Yes, sir. Carry on. Okay. Spend-based fee income is primarily the interchange- Correct. that we earn from on the spending. It is dependent on the three elements as we have always been stating. The mix of the categories in which the spend is happening. The which kind of products, whether it is a premium product, which is at the higher end of network spectrum or at the lower end, which card person is spending. Thirdly, whether it is a retail versus corporate mix. Corporate typically now, even now it gives you a higher interchange, but you have to do a pass back. Net margin as we have stated is very less. Over the last period of during the COVID, we saw this interchange rates going down because people's consumption in the discretionary items was going down and and non-discretionary was stable, whereby interchange rates are typically lower. Now, as you have seen, there has been a marginal stability and some marginal increase in the outlet as the travel has gone up, restaurants have gone up, luxury or those things have gone up. What we see is futuristically for the next year, we believe that this rate will remain stable. There are some headwinds and there are some tailwinds. There are both positives and negatives which are happening in these categories. Broadly we expect it to remain stable. Sir, on the instance-based fee income, this quarter we have seen a sharp improvement. Do you think, as we keep on charging more and more FC revenue like, fee on the rental, do we see this instance-based fee income to improve further or? We raised rental fee of INR 99 from November of last year. We increased it from March 17th to INR 199. INR 99, half of the last quarter, was positively impacted by that. You have to also recognize that the MDR fee was completely not there, which is also an instance-based fee in Q3. In Q4, we have seen a full benefit of INR 99.5, almost 17 days benefit of INR 199. These are in line with what the industry is charging. We typically the industry rate of charging is 100 basis points on the transaction. We have seen that the average ticket size is around INR 20,000-INR 21,000. INR 199 is almost roughly in that range. Mm-hmm. It is in line with the industry average. We have not seen, as I stated earlier, a decline in the spend. Whether the spend will increase further or not, that is a matter of conjecture, but that those spends are, digital spends are stable at this point. If I have to look at, in terms of spend, intensity income is approximately 1.2% of the spend this quarter. Should we assume this trend to sustain or to improve from here on? It would not be on rental, it would not be 1.2 because we make, we get interchange on that also. Okay? It's not a zero interchange category. There is an interchange also available, and after that we are now charging INR 199. The number is higher. We believe that that should remain stable and improve, at least in this quarter. Perfect. This year our operating profit growth was 17%. Despite the fact that we have seen, significantly higher interest rate, we have seen lower revolve rate. How do you see this number going forward? Because interest rates will likely stabilize in the second half. Do you see some cost synergy also coming up for us? Sure. I think you were talking about EBITDA or operating profit. Correct. I think the entire year, you correctly said 17%, but for the quarter alone, if you look at as compared to year-on-year basis, it's at 22%. I think we That way the this quarter, I mean, last quarter it has simply itself reflected a kind of negative impact on account of all the all the regulatory provisions which has impacted certain RuPay like MobiKwik, et cetera. This Q4, whatever steps we have taken, more or less is reflective of what the contribution from these new levies. I think this and this is give a kind of direction what we are aiming, where we want to optimize the cost, continue to focus on digital, increase the share of digital channels for some things. This will improve steadily. That's the kind. Overall if you look at, I mean, deviating slightly away from this operating profit, overall business metrics if you look at, the way to look at is like a quarter to quarter there will be fluctuations even in operating profit, even in the ROE. Long term averages quarter on quarter we have, like a 5% +, 25%, be above 25% ROE. That will be maintained. That is the minimum aspiration. Thank you. We have our next question from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead. Yeah, hi. Good evening. I have two questions. One is that over the If you look at the new card sourcing, then over past two, three years, the mix of self-employed has risen to now 39%. It used to be in early twenties. Likewise, the mix of government employees has also reduced sharply. The revolve rate isn't really picking up. In fact, it has only been like a bounce and strength. Is there any threshold that you would like to adhere to while broadening the risk filters to boost revolve rate? I think what is the more we are impacting the self-employed, you can perhaps explain. Basically for the self-employed customers, a lot of the self-employed actually comes from our banker channel, where we look at their, you know, savings account, current account behavior, and we onboard them. It's a relatively better profile. We have a better visibility to the cash flow. In that way it's, I mean, I would say it's a relatively a lesser risk, I mean, lesser risk in terms of self-employed because it comes from the banker channel. In the open market also, we look at repayment performance in the bureau before we onboard self-employed customers. All those checks are done in place. We have a better idea about the customer's repayment potential when we onboard self-employed customers. Right, ma'am. Today the mix is like 61, 39. Hello? Yeah. This number like we are not looking to have any limit on this 39% self-employed, what we have reported this quarter? Yeah, I think, yeah, 39% is, this quarter continuing largely. Yes. Yeah. I think we are putting any limit on this. No, we're not putting any limit. I think the way we are operating is like obviously we look at what is the potential, what is the customer's choice obviously, and what is the kind of channel we are using, et cetera, we take it into account. You know, of course billing simply does matter and the risk-return profitability at the end of the day finally does matter. So as long as all these, you know, metrics match and the equation is holding in terms of meeting market expectations, we would like to continue. Your question, other question around revolve self-employed, because in Banca we are acquiring more of these customers through the Banca channel, where we have a auto-limit and auto-fee kind of flexibility. The revolve problems will be lower for a self-employed acquired through Banca channel. Thank you. We'll take our last question from the line of Piran Engineer from CLSA. Please go ahead. Yeah. Hi. Thanks for taking my questions. Just one data question on like if you can share how many rental transactions happened on your platform over the last three months. Just to clarify on this instance based fees of roughly INR 830 crores, is there any one-off, any element of seasonality or any reason why it should dip next quarter if spends don't dip? I have already told you the average ticket size is between INR 20,000-INR 22,000 and the weightage of spends is almost around 60%. You can make an estimate of number of transactions there. Okay. Okay, fair enough. On the next thing on instant pay fee. Yeah, on the instant pay fee, as I called out earlier that, there is a provision of rental fee that's coming in this quarter, which should stay, or should stabilize, or should stay at these levels only for the next few quarters as well. There is some milestone, you know, incentive that we've gotten. I think that will normalize over the next few quarters. While I think, if I were to just look at from a BAU business perspective, this number should continue to grow. Will it see the kind of jump we've seen between quarter three and quarter four? The answer is no. We'll see a more normalized increase, going forward quarter on quarter. Got it. Got it. That explains. Thank you so much, and all the best. Thank you. I would now like to hand the conference over to Mr. Rao for closing comments. Over to you, sir. Let me thank our shareholders, investors and business partners for their continued trust and support to us. I would also like to thank my team at SBI Card for their continued commitment to ensure the company's success. I would like to highlight that SBI Card's strong focus on sustainability has helped make us emerge stronger to pass any market turbulence. While we cannot control the external factors, but we do believe that our strong business model, our agility as a business and adaptive approach to keep us well to keep fueling our growth in the future. Thank you all for participating in this call. Thank you. On behalf of SBI Cards and Payment Services Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.