4QFY21: Lower than expected yields caused the PAT to fail; credit costs in line with expectations. Gross stressed loans (including restructured loans) have declined sequentially (11% now vs. 15.6%); net stressed loans at 4.5%. Maintain the target price “to buy” and unchanged of Rs 1,155; the medium-term opportunities outweigh the short-term risks.
4QFY21 – PAT increased by 110%; Credit costs remained high: in 4TFY21, SBICARD reported a PAT of Rs 1.8 billion (up 110%), or 32% below HSBCe. The failure was motivated by lower than expected returns. Total income (net interest income plus non-interest income) increased 2% year-on-year (4% below HSBCe). However, the rise in opex (up 5% yoy) led to a decline in operating profit of 1% yoy. Credit costs remained high at 11% (annualized) compared to an average of 12% over the previous four quarters (and lower than the 13.7% in 4QFY20).
The pool of stressed loans decreased: Potential stressed loans fell to 11.1% of receivables from 15.6% in 3TFY21. Of these, the gross NPA ratio (including restructured loans over 90 days overdue) increased to 5% of receivables (vs. 4.5% q / q). RBI Resolution Loans (RBI-RE) decreased from 48% QoQ to 4.9% (vs. 9.1% QoQ). The reduction in the RBI-RE book is explained by recoveries (1.7% of credits) and shifts in NPAs (2.7% of credits). About 80% of the RBI-RE book (not classified as NPA) is less than 30 days late. Credit charges remained high at 11.1% (vs. 10.4% at Q / Q) but were lower year-on-year (13.7% at 4QF20).
The total provisions amount to 6.6% of receivables. Thus, stressed net loans stand at 4.5% of loans (vs. 7.6% Q / T). We are forecasting average credit costs of 8% in fiscal years 22-23e.
Online retail and new categories are driving the spending recovery: Card spending was up 11% year-on-year, but new card acquisitions were down 8% year-on-year. The retail and corporate sectors saw their spending return to normalized levels. Online spending in categories other than travel (up 35-50% from pre-COVID-19 level) is driving growth. The share of gun loans continued to decline from 38% (pre-COVID-19) to 28%. Thus, lower interest rates more than offset the benefit of lower financing costs.
The NIM therefore fell to 13.2% (compared to 14.5% in 3Q and 16.6% in 4Q20). Additionally, higher opex growth (+ 5% yoy) kept operating profits subdued (down 1% yoy).
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