Defaults hit SBI Cards, losses ahead

SBI Cards, the nation’s second largest credit card issuer (60 per cent owned by State Bank of India) is likely to report a loss for the second consecutive year as defaults mount, report Falaknaaz Syed & Rajendra Palande.
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Updated on Feb 25, 2009 01:58 AM IST
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Hindustan Times | ByFalaknaaz Syed & Rajendra Palande, Mumbai

SBI Cards, the nation’s second largest credit card issuer 60 per cent owned by State Bank of India (SBI), is likely to report a loss for the second consecutive year as defaults mount.

ICICI Bank, the top player, has faced similar defaults as well. Both have tightened salary and other norms for the issue of credit cards.

CRISIL Ltd, the Indian arm global rating agency Standard & Poor’s, said in a recent report that SBI Cards & Payment Services Ltd was expected to report more losses in 2008-09 on high credit costs and lower fee income. In the quarter ended December 31, 2008, ICICI bank, relatively better off but still weak, saw a pre-tax profit of Rs. 85.7 crore in retail banking on business worth Rs. 5,683 crore, as defaults and receivables in loans hit home.

Sachin Khandelwal, Head-Credit Cards, ICICI Bank, said: "In 2007-08 the credit cards business grew by 20 to 25 per cent. We had done 1.5 million cards in 2007-08 which has been reduced by 60 per cent in the first 10 months of 2008-09. The credit losses have increased by more than 1 percentage point (of the spread between lending rates and cost).”

SBI Cards, which is 40 per cent owned by US-based GE Money, reported a loss of Rs 60 crore on total income of Rs 440 crore in the six months ended September 30, 2008.

The card issuer had suffered a loss of Rs 150 crore in 2007-08 against a net profit of Rs 60 crore in 2006-07.A senior official of SBI cards, who did not want to be identified, said, "We have consciously slowed down sourcing customers by more than 50 percent from a peak of 1 lakh cards a month last year to 20,000 to 30,000 a month now to ensure a good portfolio. It’s a difficult market. We have consolidated this year and are better placed to tackle losses."

Domestic rating agency ICRA said in its latest report that SBI Cards would need to pump up its capital to meet regulatory norms.

The SBI official said credit checks had increased while the minimum salary criterion for issue of cards has been revised to Rs 2 to 2.4 lakh per year from last year's Rs 1.44 lakh.

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