SBI Cards sees easing credit costs despite tepid receivables growth and NIM pressure

Q1 FY27 Performance: Largely In Line, but Slightly Soft

In its July 24, 2026 results update, Motilal Oswal Financial Services Ltd. (MOFSL) described SBI Cards' Q1 FY27 performance as largely in line with expectations, although slightly soft. Profit after tax increased 19.5% year on year and 9% quarter on quarter to Rs 664 crore, in line with MOFSL estimates. Lower provisions offset weaker fee income.

Net interest income was flat year on year and quarter on quarter at Rs 1,680 crore, also in line with estimates. Other income declined 35% quarter on quarter and was 23% below MOFSL's estimate. Operating expenses increased 23.4% year on year to Rs 2,620 crore, partly due to the implementation of the new wage code. Consequently, the cost-to-income ratio rose to 58.7%, compared with 57.2% in Q4 FY26 and 50.3% in Q1 FY26.

Business Growth and Spending Trends

Business growth remained tepid despite healthy spend growth. Cards in force increased 6.6% year on year and 2.3% quarter on quarter to 22.6 million. New card sourcing remained within management's guided range of about 1 million per quarter, with approximately 53% of sourcing coming from the open market.

Total spends grew 27% year on year and 2.7% quarter on quarter to Rs 1,18,480 crore. Retail spends rose 14% year on year and 4.7% quarter on quarter to Rs 94,030 crore, while corporate spends declined 4.4% quarter on quarter to Rs 24,440 crore. Corporate spends represented approximately 20.6% of total spends in Q1 FY27, compared with 22.2% in FY26.

Receivables grew only 2.4% quarter on quarter to Rs 58,270 crore, reflecting the high transactor mix and lower revolving balances.

Margins and Portfolio Mix

Profitability was affected by a 30-basis-point quarter-on-quarter decline in net interest margin to 10.8%. This reflected a 20-basis-point decline in yields and a 10-basis-point increase in the cost of funds.

The transactor mix declined to 45% from 46% in Q4 FY26, while the revolver mix remained at 22%. The EMI mix increased to 33% from 32%. Management expects NIMs to remain around current levels, supported by portfolio actions, a higher EMI balance share and yield optimisation.

MOFSL identifies potential near-term policy actions that could increase funding costs as a key monitorable. Management also expects operating expenses to remain somewhat elevated as festive-season activity increases.

Asset Quality and Credit Costs

Asset quality improved meaningfully during the quarter. Credit cost declined to 6.5% from 7.7% in Q4 FY26. SBI Cards utilised Rs 180 crore of the Rs 220 crore management overlay created in Q4 FY26 following its annual expected credit loss model refresh.

Management expects further credit-cost moderation, supported by portfolio and risk-management actions taken over the preceding one to two years, first-delinquency buckets at a decadal low, lower forward delinquencies and a favourable macroeconomic environment.

Earnings Outlook and Valuation

MOFSL broadly retained its earnings outlook, while reducing FY27E and FY28E total-income estimates by 1.9% and 2.7%, respectively, and operating-profit estimates by 5.1% and 6.2%, respectively. Lower provision assumptions, with FY27E and FY28E credit costs reduced to 6.4% and 6.1%, respectively, largely offset these changes.

Consequently, FY27E and FY28E profit-after-tax estimates remained broadly unchanged at Rs 2,980 crore and Rs 3,620 crore, respectively. MOFSL forecasts return on assets of 4.4% and return on equity of 18.0% by FY28E.

MOFSL reiterates its Neutral recommendation and sets a revised target price of Rs 700, valuing SBI Cards at 18 times FY28E earnings per share.

Key Thesis Supports and Constraints

• Thesis supports: Easing credit costs and improving asset quality.
• Key constraints: Muted receivables growth, a low revolver mix, pressure on margins and a moderating corporate-spend mix.