SBI Cards and Payment Services Ltd (SBICARD) Q3 FY23 Earnings Concall Transcript

SBI Cards and Payment Services Ltd (NSE: SBICARD) Q3 FY23 Earnings Concall dated Jan. 24, 2023

Corporate Participants:

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Analysts:

Dhaval Gada — DSP Mutual Fund — Analyst

Ajit Kumar — Goldman Sachs — Analyst

Mahrukh Adajania — Nuvama — Analyst

Piran Engineer — CLSA — Analyst

Param Subramanian — Macquarie — Analyst

Shubhranshu Mishra — Phillip Capital — Analyst

Gaurav Kochar — Mirae Asset — Analyst

Puneet Balani — Nomura — Analyst

Shweta Daptardar — Elara Capital — Analyst

Manuj Oberoi — Yes Securities — Analyst

Anand Dama — Emkay Global — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to SBI Cards and Payment Services Limited Q3 FY 2023 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Rama Mohan Rao Amara, Managing Director and Chief Executive Officer of SBI Cards. Thank you. And over to you, sir.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Thank you, Faizan. Good afternoon, everyone. First of all, let me wish you all a very Happy New Year. I would like to thank you for joining us today for Q3 FY ’23 earnings call, the first earnings call of the new calendar year.

With continued geopolitical tension and COVID occurs in China, the world economy is still on unstable ground. In this turbulent macroeconomic environment, India continues to be a shining beacon as one of the fastest growing major economies, standing as fifth largest in the world now. It is reassuring to note that RBI’s measures to reduce inflationary pressures have started yielding results, as evidenced by CPI Inflation in December closing to 5.72% with the WCI Inflation at 4.95%. India’s GDP for FY ’23 has been projected to grow by around 7% as per government’s advanced estimates.

The festive season that started from September ’22 has seen the strength of India’s domestic consumption. From strong consumer space during Diwali season to busy holiday travel season in December, India’s consumer spend have improved further. India’s consumer confidence has been improving, which is the encouraging sign of the country’s future consumption prospects.

Now talking about the digital transactions, they continued to exhibit robust growth in the country. According to a recent report by Worldline India, digital payments grew to over 23 billion transaction in Q3 2022. This shows that 88% increase in volume as compared to Q3 2021. Among other digital payment instruments, credit card have also registered a very healthy growth. Credit card base has expanded from 67.6 million in November ’21 to 18.6 million in November ’22. Since March ’22 industry has been witnessing monthly spends of over INR1 trillion, reaching an all-time high of INR1.29 trillion in the month of October 2022.

Growing customer base and increased usage, along with the new and favorable regulations, especially linking of UPI and credit cards will help the industry maintain a peak momentum. Given the low credit card penetration and favorable demographics, I would like to reiterate that financial growth potential for the card industry is immense.

Let’s now look at SBI card business overview in Q3 FY ’23. At SBI cards, we leveraged this upbeat market momentum in Q3 to build scale, both in our new card sourcing and spent space. This helped us partly observe the impact of changes in the credit card industry. This quarter saw some of our traditional revenue streams being impacted. However, the steps taken by us to reset, reinvigorate and build business for the future have strengthened our acquisition caliber and added revenue generating avenues for the future. We will see the positive results of these measures approving quarter-on-quarter in times to come.

Specifically, the quarter was marked by three key developments. The first one is, implementation of more RBI Master Direction guidelines. It has put the owners of the issues now to make these systems and processing more customer-centric, leading to timely resolution of customer issues. While these regulations have brought in many benefits for the ecosystem, the industry has seen some adverse impact on the revenue during the quarter. Example, the changes [Indecipherable] credit limit increase and non-capitalization of unpaid charges, leeways, access, etc. SBI Cards had anticipated this and has already taken mitigation measures to largely offset them.

Second point being, continuation of festive season. We continue to invest in initiatives and offers, align the customers’ preferences, including national, regional and hyper-local offers with a special focus on EMI transaction. Focus our efforts to grow our EMI loan portfolio is yielding results. And we are striving to improve the NIM and interest revenue over the next few quarters. This customer engagement initiative required larger marketing spend, as reflected in our results too.

Third point being, interest rate hikes. As guided in the past, due to increase in the interest rates, our cost of funds has also increased. We have taken measures to transmit the increase in the cost of funds where possible by dynamically revising the pricing of our new EMI loan disbursements.

Coming to specific details on our performance during Q3 FY ’23, I’m happy to share that SBI Cards continue to deliver robust business performance. The performance was a result of a sharp focus on key priority. The first one, well calibrated and strong customer acquisition to improve market share. We added about 1.6 million new accounts during Q3, achieving a 62% year-on-year growth, the highest ever during the quarter.

Average monthly sourcing this quarter was at 5.4 lakhs per month versus 4.3 lakhs in the previous quarter. SBI sourcing was at 49.4% versus 37% in the previous quarter. We reached 15.8 million cards in-force with a healthy 21% year-on-year growth. The market share for cards in-force stood at 19.3% as per RBI November 2022 data. This is a result of wealth, our true investments to scaling up our traditional and the digital liquidation. The results are visible both in terms of overall numbers and the economies of scale that we have achieved.

Three months back, we had piloted and entered in the digital acquisition platform SBI Card SPRINT. This pilot has shaped well on expected lines. And we plan to harness this potential in a much bigger way in future. Our traditional open-market and banker channels too have reached the steady state. Compared to 3 lakh cards per month AGF, our card acquisition per month now is 5 lakh cards and we plan to maintain this run rate provided the environment is stable. This is expected to give us a net addition of 0.9 million to 1 million cards in a quarter.

Second, steady and sustainable spends growth. Our spends growth has been steady during the quarter. Overall spends have grown by about 24% year-on-year in Q3 FY ’23, reaching yet another highest-ever spends milestone in a quarter at INR68,835 crores. Daily average retail spend is 2 times that of pre-COVID period, that is December ’19 January to February ’20.

Retail spends have also shown strong 29% year-on-year growth at INR54,562 crores in Q3 FY ’23. Online spends continue to be strong and contributed over 57% share in our retail spends. Point of sales too, we have seen a healthy growth across key spend categories, including consumer durable, apparel, furnishing and jewellery. Travel-related categories have grown at 32% year-on year, driven equally by online and POS. Corporate spends stood at INR14,273 crores in Q3 FY ’23 with around 10% year-on-year growth. As per RBI November 2022 data, our spends market share stands at 18% for FY ’23.

The third pillar, engaged and active customers to build earning assets. Our strategy of offering fee-based card has been integrated during the past few months. Today, we have a strong base of engaged and active customers. Our spend active rate continues to be at 50% plus. Spend per average card has grown to INR1.79 lakhs in Q3 FY ’23 from INR1.72 lakhs in Q3 FY ’22. Receivable per card has grown by around 10% to INR44,318 in Q3 FY ’23 from INR22,133 in Q3 FY ’22.

Our gross credit card percentage for the quarter is at 5.6%, down from 6.2% in Q2 FY ’23. Our receivables have grown by 33% year-on-year, reaching INR38,626 crores as of December ’22. [Indecipherable] as a result of changing consumer behavior on seeking attractive rating option, we have focused on increasing EMI assets, resulting in high interest-bearing assets comprising of both EMI and revolver in Q3 FY ’23 at 61% compared to 59% in the previous quarter. We continued with the expansion of our credit card portfolio and partnered with Punjab & Sind Bank to launch three co-brand variants for millions of Punjab & Sind Bank customer. We are exploring many such customer-centric partnerships and opportunities which will grow over the next few months.

Coming to financial performance in Q3 FY ’23, SBI Cards continues to focus on sustainable and profitable growth, showcasing utmost resilience despite the dynamic environment we are navigating. As I said earlier, this quarter, we have consciously invested to build scale with an eye on future revenues. Even though it has moderated few of our metrics in the short-term, we have continued to keep our eyes on the overall long-term potential of the Indian market.

Our total revenues stood at INR3,507 crores and has grown at 21% year-on-year during the quarter. Our cost of funds has increased this quarter as the lag effect of transmission of market rate increases was felt higher in Q3. We have shared our daily average cost of funds in Slide 16 of our presentation. And as indicated in our last earnings call, our cost of funds has increased by 50 basis points quarter-on-quarter.

Operating costs were higher this quarter, 15% increase year-on-year, driven by festival spends and higher acquisition. The company has achieved a PAT of INR509 crores in Q3 FY ’23, which is marginally lower than previous quarter. The business model is resilient and we observed the impact of increase in cost and changes in [Indecipherable] through business growth this quarter, which is sustainable for the future. However, we do expect our earnings to be impacted with the residual lag effect of increasing rates next quarter as well.

Cost is expected to increase by another 30 to 40 basis points in Q4, which can be largely offset through judicious pricing of new loan disbursements. On asset quality, our GNPA inched up slightly to 2.22% from 2.14% previous quarter. However, our gross credit cards percentage for the quarter is stable in our target range at 5.6%, down from 6.2% in Q2 FY ’23. Return on average asset for the quarter ended December ’22 is at 4.8%. Our liquidity position continues to be strong and the capital adequacy is at 23.3% for the period ended December 2022. We maintained the LCR at a healthy 85%, much above the regulatory minimum throughout the quarter.

In conclusion, the global economy is still dealing under uncertainty and environment continues to be volatile. Thankfully, domestic economy has proved to be resilient as the macroeconomic indicators are encouraging. We at SBI Cards have taken measured decision and initiated actions to ensure meaningful and sustainable growth, while ensuring that we continue to generate value for all our stakeholders, including customers, investors and shareholders.

So Faizan, now we are open for questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Dhaval from DSP Mutual Fund. Please go ahead.

Dhaval Gada — DSP Mutual Fund — Analyst

Yeah, hi. Sir, thanks for the opportunity. Had three questions. First is relating to your comment on the cost of fund increase of 30 to 40 bps next quarter. Could you just give some perspective on margins as well? So we reported about I think 11.6% margin this quarter. Do you think they’ve bottomed out? I mean, I didn’t get exactly your comments on yield. So that was the first question. Then I’ll ask the other two.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Yeah. I mean, given the nature of funding what we have where 65% of the funding happens through short-term. The last repo revision of 35 basis points will have an effect in next quarter. So that’s the reason we are guiding for a 30 to 40 basis point increase. But during the last quarter also we have actually changed the pricing of EMI loan disbursements. So whenever there is an opportunity, we are transmitting. And particularly, when there is increase in our cost, we are able to transmit for the new disbursement. But like a current portfolio, unlike banks wherever it is linked to the excellent benchmark, it gets reset — repriced automatically.

That benefit is not available to us, but to the extent of new disbursements, slowly the color of the portfolio changes. So that’s the reason we are seeing like next quarter, we are very confident of minimizing this compression. Whatever compression we have seen, which was at 50 basis points, that we are confident of minimizing that compression. So it will forward around 11.3%. I cannot say like where it will be, but it gives — we are very confident of managing that compression given the kind of exit rates what we have seen month-on-month.

Dhaval Gada — DSP Mutual Fund — Analyst

Understood. The second question is relating to the revolve portfolio. So last quarter, we sort of talked about the festive season sale being there at the end of the quarter. And hence, optically, the revolved rate percentage had come down to 24%. Just — and you said that we need to see about 45 days to 60 days timeframe to see how the trend sort of play out. So could you just give some perspective as to why the percentages have not gone up, some color around that? And I see the incremental mix being shifted. At what point do you see — start seeing uptick in your revolved share? So that’s the medium term question as well.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Yeah, Dhaval. See, when we look at our revolver and perhaps compare it with other place as well, I think our revolver share at 24% constitute roughly around 65% of level what we used to see pre-COIVD. I think it is our estimate, our information rates like is it in line with rest of the major players as well. But having said that, we have taken several measures. It’s a fact that actually some of the — such kind of sell comparative customers who used to contribute to the revolver share, higher revolver share, the 9% of the portfolio was washed out and the remaining certain portion was actually that auction tools were extended which now [Indecipherable] hardly constitute any return of percentage of the overall share.

But last couple of years, we have been increasingly investing higher risk appetite, particularly, we are increasingly targeting segments like NPC. We are also targeting younger and self-employed segments. In fact, I’ve given in the deck as well, 36% of new sourcing is coming from a general population with the age of up to 30 years. Similarly, self-employed constitute around 34%. We are confident that things will improve in future. But this is the quarter when we have seen — like October month was a further dip as compared to September. But November, December again revolve rate — this is the metric which we watch closely internally. That has compare to pre-festival what we used to see.

So this is giving confidence that this will improve in the times to come. But as you rightly said, we are of course leveraging the EMI portfolio that continuous — in order to optimize the industry revenue, we will continue to harp on further increase in the share of EMI loans.

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

So Dhaval, just to add. Increase in revolver is looking stickier, this point of time because after festival we were also looking at the customer behavior that the incremental asset — spends have happened and how do you get them converted into interest-bearing asset. So obviously, there was a action at our end also where we also pushed and did lot of programs for the customer to convert into a installment lending asset, and you can see the results of that.

If you look at — and this is just to give you some numbers. So for example, if you look at on a year-on year basis, if you are — our asset has increased by, let’s say, — I think interest-bearing assets overall has increased by almost 35% or so on a year-on-year basis. When you look at it, the majority of the asset growth interest-bearing has happen in the installment lending, which is almost close to around 48% to 50% growth is what you see there. The balance — when you’re looking at even the revolver asset or the transacting asset, revolver asset is growing by almost close to 19%, 20%. So that’s the range and it’s growing.

And that is the range in which the transacting asset is growing maybe a couple of percentage points more. So if you take out the growth of — in the growth of asset, if you take out the whatever we have put into the installment lending, the balance revolver and transactions are broadly growing at the trajectory, maybe a couple of 2%, 3% point higher.

Now the choice which we — the way that we are looking at is that we find interest-bearing asset from the installment lending far more stabler. It causes lesser amount of losses at a low — gets us more sticky customer. So if it continues to happen and we push for it, we are quite okay with it. So our view is that we would push more for this installment lending assets to go with. Yes, it has a bearing on because it doesn’t come at our 42% interest rates, so you will have — you will look at that interest income from that perspective, but this is how we are looking at portfolio growth. If revolve comes on — in a due course of time it comes — if it comes, very good, but we are looking at it like this.

Dhaval Gada — DSP Mutual Fund — Analyst

Got it. Thanks. And just last question is on the cost-to-income. So like you mentioned in the previous call that given the rise in cost of funds and the other hits relating to RBI circulatory changes, the cost-to-income was suppose to move to about 57.5% to 58.5% for FY ’23. Do you still hold the guidance? I see the first nine months is about 59.3%. So just wanted to reconfirm on that.

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

Dhaval, on that front, we do expect the numbers to be below 60%, obviously, as it was seen at year-on-year, the festival quarter does see our higher cost-to-income ratio.

Dhaval Gada — DSP Mutual Fund — Analyst

Okay, thanks.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

I think, Dhaval, one element we need to take into account is, let’s say, if we compare the overall spends composition vis-a-vis 18 months back or one year back, the share of absolute amount of corporate card spends have increased substantially. I think the share is always take around 22% to 25% of the overall spend, but the absolute amount because of increasing the B2B volumes, it has increased. It has an effect of increasing the cost-to-income. So while it will not repeat the bottom line, because it is — you have both top-line as well as impact on the expenses almost to the same degree, it elevates the cost-to-income. But if you normalize for it, we are trending lower than — much lower than 60% for the few retail kind of our activators.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Also this quarter, absolute new acquisition is also higher. So there is that incremental spends which has happened on that also.

Dhaval Gada — DSP Mutual Fund — Analyst

All right. So just a very quick clarification. So normally in 4Q, we see about 5% to 7% kind of sequential decline in cost compared to the third quarter because of the seasonality. Do you see that happening this time given the higher originations or do you see things changing compared to your usual trend? I mean, very simple.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

We do see a moderation in the cost-to-income ratio. I think there are two elements that both Girish and [Indecipherable] called out. One is the corporate spend having gone up in terms of absolute value. So therefore, whether — I don’t think we’ll see a 6% to 7% drop, but definitely, the fact that it is going to be a non-festival quarter, the cost of acquisition will stay as some of that element will still stay in quarter four, but the festival spend [Indecipherable] we will see a moderation in the cost-to-income.

Dhaval Gada — DSP Mutual Fund — Analyst

Got it. I was referring to the absolute cost, but I get the point. Thank you, and all the best.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Thank you.

Operator

Thank you. The next question is from the line of Ajit Kumar from Goldman Sachs. Please go ahead.

Ajit Kumar — Goldman Sachs — Analyst

Thank you for taking my questions. So first one is recently you have made few changes in terms of reward points and charges. Reward points have been reduced by half on online expense done on Amazon, processing fee has been increased on all merchant EMI transaction and processing fee has been introduced on all rental payments. So any calculation that you’ve done internally how much positive impact it would have on the bottom line? And would it be sufficient to overcome the decline in fee income coming from reduction in over limit fee?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

So actually two changes that you said are correct, the third one I would like to clarify. The Amazon 10x has come down to 5x, but that is only on SimplyCLICK card, not on — that does not impact any other card. SimplyCLICK is a large portfolio. We have more than 1 million-plus cards there, but that is one portfolio where they’ve been impacted.

The second that you’re rightly saying, we’ve put processing fee and we have put some other changes on the reward points, but those are changes where we are — basically where we were looking at either discouraging double dipping those benefits by the customer. So the essential mood point there is wherever the customer was getting for the same spends different kinds of benefits together and it was becoming more that is where the double dipping is being stopped. Apart from that, there is no other changes that we’ve made. This will give some benefit on the bottom line, but not sufficiently to compensate for the…

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

To compensate for the entire loss that we have on changes around [Indecipherable] deleverages.

Ajit Kumar — Goldman Sachs — Analyst

Okay, okay. Thank you. And the second question is on the new sourcing mix. Our proportion of new sourcing coming from category within salary segment has jumped substantially in last few quarters. So what is the profile of these customers, their income level, etc.? And along with this new sourcing coming from Tier 3 city under 30 age bracket has also increased. So do you think this will lead to higher credit costs later on compared to 67% that we have seen in steady-state?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

So a lot of this catch be in all that is just an expansion that you see. I don’t — also the banker proportion goes up, we see a lot more of those. However, in terms of delinquency criteria takes lot of that into account. Just because they’re from Tire 3 doesn’t mean that the delinquency of that portfolio is higher. I think the one thing that changed it for the selection abilities are fairly in line. So whether it is Tier 1 or it’s Tier 3, it is the customers’ own score and profile that drive delinquency not so much with the fact that it’s a Tier 3.

Ajit Kumar — Goldman Sachs — Analyst

Okay, okay. Thank you. Thanks a lot.

Operator

Thank you. The next question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.

Mahrukh Adajania — Nuvama — Analyst

Yeah, hello. My first question is on your — you said that yes you have enough offset to probably offset the rising cost of funds. But what has been your strategy of pricing EMI loans given that in general there’s a lot of talk about charging the customers fair and not overcharging. There are statements coming from ministry. So what — I mean, by what rate has your EMI interest on new disbursements gone up compared to say your cost of funds? Over the last three months or over the last six months, what has been the increase in EMI yields on new loans?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

Yeah. See I think RBI has been encouraging NBFCs to adopt risk-based pricing. And now I think actually everybody has fallen in line. It is where we compare with the regulation during the year. This is more like — you look at intrinsic risk of the customer and align the pricing to the inherited risk of the customer. So that way customer having a very good score or otherwise in terms of low risking customer, definitely the pricing will be attractive comparable to what alternative feedback outside whether it’s a bank or whether NBFCs, while it will slowly increase for the medium to high risk when we come out there. So that way we look at the risk, we look at the cost of funds, we look at the — our ability to collect all the deficiencies will automatically translate into the related components in the pricing.

Mahrukh Adajania — Nuvama — Analyst

Got it, sir. How much would your yield have increased in the last three months and in the last six months?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

I think our debt covers the whole portfolio, it’s not talking about very specifically about the yields of the EMI loans. That we get camouflaged, but it can be calculated at a reverse split in terms of…

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

So between quarter two and quarter three, our yield has largely remained the same because some of the higher-yielding assets from the previous quarters are running off given that our book is actually largely a nine to 12 month average kind of — and the new booking is actually happening with the prevention of the risk-based pricing that we introduced in quarter two. So the yields quarter-to-quarter has been checking about 16.2% overall.

Mahrukh Adajania — Nuvama — Analyst

Perfect. And the other question I had is on your credit cost. So what do you see as a normalized level of credit cost we bear? Is there a normalized level of delinquency? Because these are now the best times for the sector as a whole.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

So I think we’ve been talking about, it’s better to look at a credit cost on a range basis because there are some quarter movements that has happened. And I think that’s the number we’ve been giving in the past. We should see around 6%. We used to be 6.5% pre-COVID. Around 6%, 5.75%, 6.25%, that range is what we are comfortable with.

Mahrukh Adajania — Nuvama — Analyst

Got it. Perfect. Thank you so much.

Operator

Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA — Analyst

Yeah, hi. Thanks for taking my question. Firstly on rental spend since we started charging INR99. Just wanted to understand how the experience has been in terms of customer stickiness? Have we seen a decline in spend? And does that come in your spends-based fee or instance-based fee?

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

This processing fee we started charging from 15th of November. So this quarter you have half — almost 45 days benefit of it into it. We have not seen any impact by charging this fees as of now. So the impact on people is going through almost now 75 days because it’s been 25 days after month end also. So we have not seen any change. And it goes into instance-based fees.

Piran Engineer — CLSA — Analyst

Sir, then what explains the higher change in this quarter? So if I take spends-based revenue divided by spend, is it just because corporate spends have gone up?

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Well, two things are there. There is — while the online spends have also been higher in this quarter, but it is similar to the last quarter. So that way online spends do give you higher interchange. Corporate is higher. So that corporate has also increased and added to the interchange percentage. So it is — and thirdly, the travel has also gone up, which we have been talking about. For Q3, we have seen the increase in the travel side in the month of November-December. So these three have led to the increase in interchange. It’s not very high, it’s marginal, but it has increased.

Piran Engineer — CLSA — Analyst

Got it. Got it. Okay. And my second question, last year our instance-based fees were about INR1,800 crores. And if you could just give us broad perspective of that INR400 crores of source OVL. What about the remaining INR1,400 crores? What does that look like?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

So we have not given the break-up of instance-based fee, but it is — there are major key components where late fee is also one of the components in that front. You have forex emergency. There is a processing fee limit there which is also a component. OVL, as talked about, was also a component. So there are other such fees. Now as we’ve just talked about, the processing fee of rentals is a componenet. I think EMI processing fee will also go there. So there are other components. So there are multiple of those, we have not given a break-up of this.

Piran Engineer — CLSA — Analyst

Got it. Fair enough. Okay, that’s all from my end. Thank you.

Operator

Thank you. The next question is from the line of Param Subramanian from Macquarie. Please go ahead.

Param Subramanian — Macquarie — Analyst

Yeah, hi. Thanks for the opportunity. My first question is, sir, this quarter we’ve seen an increase in the NPA without seeing corresponding increase in the revolver. Could you explain how that is happening, because logically one would assume that the customers should revolve first? So why we’re seeing an uptick in NPAs without seeing a corresponding movement?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Param, these accounts first becomes a revolver then becomes an NPA, you’re right. But some of the transactors also move into NPA by not paying up. So that’s just the route by which it becomes NPA. I think — and that’s what we are saying, we have to look at it from a range perspective, okay? Our numbers pre-COIVD when our revolve rates was still high, it was in the range of 2.5, 2.6 [Indecipherable] The number to look at is right now again look at NPA also from a range perspective, don’t look at it as an absolute number.

If you look at it, we are still with the increase of 2.2, which is much lower than what we used to be. You have to look at the credit cost, the NPA and the ECL altogether, okay? if you look at our ECL, which is more like the quality of portfolio metric, [Indecipherable] that again is down to 3.3 and that actually sequentially is better from last quarter as well. Again, that number pre-COVID was in the range of 3.6, 3.7.

So overall, the portfolio is trending in the way that we are comfortable with. What movement would be 2.14 to 2.2 is just that. It is at the end of the day, we look to operate within a range and likely set the range is to allow us to be able to optimize the credit cost. We are using this buffer to go out, test the few segments, you see that the self-employed has gone up, you’ll see that some of our peers salaried has gone up. We are using that put test and learn a few segments, which is in reality we have to go back and start learning how to lend to some of these segments again.

Param Subramanian — Macquarie — Analyst

Yeah, I got that. What I was getting at was, is there a higher NPA that we’re seeing in the EMI bucket or there is some behavioral change which is resulting? You’re saying this [Indecipherable] is that the correct trading?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

No, it’s not like — in fact, normally the way it works with the customers who take EMI, there are two types of EMIs. There are one which customers converts purchases to EMI, that is within their line. And then there are some good customers who we give them a loan over and above the line also. The second one anyway is given only to the better customers. So that performance is actually very well. EMI customers actually tend to behave better because they are slightly more savvy customers. They choose to convert it rather than revolve. So in terms of behavioral, we are not seeing any significant behavioral shift.

Param Subramanian — Macquarie — Analyst

Got it, ma’am. Thank you. My next question was on the over limit fee. So I think you’re showing in your profit work that INR81 crores of PAT impact is due to the over limit fee. So this is a post-tax impact, right? So at a fee level it’s higher, right? So is it right that we’ve lost the largely almost the entire over limit fee and are we going to recoup this amount — some amount of this going forward or is this — on a quarterly basis is this something that INR80 crores of bottom line impact, is this something that we are going to work with going forward?

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

The recovery — and you’re right. The majority of the over limit fees seems to have got — has not come back. The recovery is hardly anything. We have tried a lot of action in terms of taking consent from the customers and other things. However as of now for last two quarters, because this particular impact has started to come in from 1st of October itself. So when we see the impact for the full quarter and even January, the recovery is not much.

Param Subramanian — Macquarie — Analyst

Got it. Thanks. One last question if I could squeeze in. Is it right that rental spend would be 10% to 12% of your total spend? Is that ballpark number correct? Thanks, everyone.

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

So we have not given the weightages, but it is slightly higher than the number that is stated.

Param Subramanian — Macquarie — Analyst

Okay. Thank you, Girish.

Operator

Thank you. The next question is from the line of Shubhranshu Mishra from Phillip Capital. Please go ahead.

Shubhranshu Mishra — Phillip Capital — Analyst

Hi, sir. Thank you for the opportunity. Couple of questions. The first one is on the total number of cards that we have been issuing either on a monthly basis or on a quarterly basis. Is this largely to do with the activity regulations that have been put in? Actually the net issuance would come off by a huge margin, which is why we are issuing close to 5 lakh to 6 lakh cards. That’s the first point, sir. And second is, can we please give the average balances for EMI revolver and transactor? Thanks.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

To answer your first question, which is we are only aligning this increase in the volume to take care of attrition. We have also stated like we would like to continue this run rate, right? I mean, we felt like that we continue — we would like to continue to operate at 5 lakhs. We have certain natural attrition. In fact, that target is like, in the past, we guided — I mean, the guidance was to — like we are targeting a 300,000 the net addition per month. So whether we are now increasing it to 1 million. So we will operate in a broad range of 0.9 million to 1 billion of net card addition in the quarter. That will be the broad range in which we’ll process.

Shubhranshu Mishra — Phillip Capital — Analyst

Thank you, sir. And the second question, sir.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

So while we have not declared exact balances, average balances, but I can tell you the people who are revolving, their average balances are higher than average, even the instalment lending is close to the average balance that you see there, that is where it is. Transactor balances are slightly lower. So that’s how [Indecipherable] We have not given the exact numbers — declared exact numbers.

Shubhranshu Mishra — Phillip Capital — Analyst

Right, sir. And if I can squeeze in one last question, sir. When Slide number 10 where we gave out spend categories, is it that the online spends have higher ticket sizes, which is why despite the POS spends going slightly faster, the total spends are not growing as much?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

No. You are making that estimate because you don’t have the weightages of these categories. It is not so. There is a difference on ticket size on online versus point-of-sale if a offer is running. So when you run those 10% cashback offers, then you get a higher ticket size on online spends, because there the minimum qualification level itself is 7,500 to 8,000 or so. So that skews the whole thing. Otherwise in a normal day, when no offers are running, it is broadly similar. So that is point one.

The second thing is, when you see this number here, it is actually in — the interesting part here is I wanted to highlight was that in Q — in last quarter, because festival season was divided into Q2 and Q3, the online spends on an overall basis were broadly as the same value. The increase, the majority come from the point-of-sales.

Shubhranshu Mishra — Phillip Capital — Analyst

Right. Sure. Thank you. Best of luck.

Operator

Thank you. The next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.

Gaurav Kochar — Mirae Asset — Analyst

Yeah. Hi, sir. Good evening. Sir, a couple of questions. Firstly, I think this earlier participant also asked, so just wanted to cross-check. The instance-based fee is down around INR80 crores quarter-on-quarter. And on a gross basis, I’m assuming the impact of over limit charges is about INR100 crores. So is it fair to assume that all the new fees that you’ve introduced during the quarter amounted to around INR20 crores, INR25 crores?

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

So we cant give the exact number, but mathematics tells you that…

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

So there are other components in instance-based fee that Girish pointed out. There is a late fee component. There is other fees — processing fee, etc., which has gone in. So there is a plus minus and non-line item. I think what we are — if you’ll see, we clearly called it out. I don’t think you need to drive anything. That number is right there on the page. But it’s not really a simple calculation of X minus Y, there is a ABCD as well.

Gaurav Kochar — Mirae Asset — Analyst

Right. The reason I was asking, I wanted to understand whether these new initiatives, how much of that can recoup this INR100 crores of gross expenses — gross quarterly run rate that we have lost?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

See, some of these initiatives have already launched in middle of the last quarter. And while we do have an estimate as we are building up our plans for this quarter and for next year as well, it’s difficult for us to give you any guidance at this point in time.

Gaurav Kochar — Mirae Asset — Analyst

Sure, sure. Fair enough. My next question is with respect to provisions. This quarter, we had about 5.3 billion provision. And going forward now given that stage two is already down to 6%. Prior to COVID, if I look at, that number used to be in that 8%, 9% range. Now — I mean, given that stage two is falling, revolve book is not building, it’s about 24% plus-minus one or two percentage points. Don’t you think the credit cost should actually be much lower than the historical 6%, 6.5% range that we’re speaking about?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

So once the 8%, 8.5% that also included the RBI RE also. [Indecipherable] anything that’s RBI RE, we were considering that as stage two. And you are right, our stage-wise balances now are fairly healthy. The number is trending exactly the way that we want to. And I think the point to look at is, there is a range at which we want to operate. And like I said, pre-COVID, the range was much higher. We were comfortable even with a 6.5%, 6.6%. That is not where we are heading right now.

We do want to be 6% [Indecipherable] mostly to be in the range of 5.75% to 6%. That’s the number that we are aiming for. And the way to look at it really is this at the end of the day, this is an unsecured business. We are in the business of taking [Indecipherable] I am not aiming to do anything like open up the gates and start booking everybody, but the ideas is to use this buffer that we get in the credit cost to test segments, because the reality is that there are some fairly large cuts we need during COVID period in terms of self-employed, second category salary, [Indecipherable] some of the outer locations that we didn’t want to. The idea is to use this to test the few segments. And that is why we do think that look at us on a full year basis in a range. We would be anywhere between 5.75% to maybe a 6%, 6.15%. We are not aiming to be that much lower output and we are not utilizing that money well.

Gaurav Kochar — Mirae Asset — Analyst

Sure, sure. So just mathematically, if the stage two falls to let’s say 5% in the next couple of quarters, will that not contribute to lower credit costs, just arithmetically?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Arithmetically, yes.

Gaurav Kochar — Mirae Asset — Analyst

Sure, sure. And if you could give break-up of the opex into acquisition cost and the corporate spend-related cost. The cashback that you give to coporates with relatively higher MDR. If you can call out or maybe as a percentage of spend, how much would that be?

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

So just here again you want the break-up of the opex between the acquisition cost and…

Gaurav Kochar — Mirae Asset — Analyst

And the corporate spend-related opex.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

We don’t share this number. Sorry, Gaurav.

Gaurav Kochar — Mirae Asset — Analyst

Okay. Just the acquisition cost, if you can…

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

Yes. [Indecipherable] it will be safe to presume like whatever you guys will be — most of it you will be transmitting [Indecipherable]

Gaurav Kochar — Mirae Asset — Analyst

Okay.

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

So as we always make it, it’s more of a top-line game rather than a bottom line game. So based on this you can model it.

Gaurav Kochar — Mirae Asset — Analyst

Okay, understood. And just last question on RuPay credit card on UPI. So what — I mean, what would be the MDR eventually over there? And what is these spend contribution of RuPay cards in our overall mix right now?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

So on the RuPay cards, We have closed to almost 1.3 million to 1.5 million customers out of our overall portfolio. So spend ratio would be slightly lower on this one, but it’s broadly in that range if you’ll pick overall things. On the MDR side, because we are — the conversation as you would have seen, NPCI also declaring about it. Less than INR2,000 for small merchants as defined by RBI. It is in wholly in those cases that the interchange will not be available. Rest their stated and it will be as per the normal credit cards scenario. So this is how it’s going to be. However, once we start doing this business, we will also see the how the mix of customer spending from which categories and how that mix is coming to come to a weighted average MDR. But whatever be the case, it should all be incremental because these customers we have already incurred all the cost. We have given the card to them, the cost of acquisition is already incurred. So all the gains should be marginal gains. There should not be any cost if this should be just extra spends from that customer coverage to us.

Operator

Thank you. Mr. Kochar, may we request that you return to the question queue for follow-up questions. [Operator Instructions] The next question is from the line of Puneet Balani from Nomura. Please go ahead.

Puneet Balani — Nomura — Analyst

Hello.Yeah, so firstly on the employee expense [Indecipherable] we have also witnessed a hike there around 10% Q-o-Q. So do we expect to continue seeing firstly on the total number of employees, what is that, have we added much? Should I expect this trend to continue since we are scaling up in Tier 2, Tier 3 cities? Firstly on that.

And second bit on the credit cost bit. You highlighted in 2Q that you will be witnessing some reversals in the Stage 1 assets on account of the last seven days, there was a higher increase in the receivable book and accordingly you had mentioned that. So has that happened because the numbers seems to be in line with the 1Q levels on credit costs? So yeah, those will be my two questions, yeah.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Sorry, we didn’t get the first question. The voice wasn’t clear. We got the second question about credit cost.

Puneet Balani — Nomura — Analyst

On the first one, it was…

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

[Indecipherable]

Puneet Balani — Nomura — Analyst

Hello. Yeah, on the first…

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Yeah, yeah, the first two question.

Puneet Balani — Nomura — Analyst

Yeah. That was on the opex bit. Like I mean, the employee expense has increased around 10% Q-o-Q. So would like — on the trend basis, should I continue to factor in this like because we are continuing to hire for scaling up in Tier 2, Tier 3 cities? Was this a non-recurring one because we have reached hired scaled-up now and we’ll wait. Any color on that?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

So I’ll take the second question first and we’ll come to the first question later. So if you recollect, one of the things we said about the last quarter 6.2% is that a large part of this then happened towards the end of the quarter and there wasn’t enough time for it to get built, get converted to EMI and get [Indecipherable] and that’s why we have seen sudden increase in the Stage 1 in terms of that.

Overall, if you look at that number, we are actually down to 5.3%. What we’ve seen this time in the way that the area has grown, it’s a little bit more even in this month. So the spend happens, it get built, it gets paid-off and that’s why you see the split of that normalization of the credit cost. I think the Stage 1 will not come down because as [Indecipherable] will go to Stage 1 only, okay? Our distribution is what we try to manage. And like I said earlier, 92% of our book sitting Stage 1 okay. And that is one of the best distribution we had even historically.

Puneet Balani — Nomura — Analyst

Okay.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

One the first question, if I get it right. Your question is our employee cost has gone up 10% quarter-on-quarter. You are asking us will this continue to grow in this quarter as well, in quarter four. is that the question?

Puneet Balani — Nomura — Analyst

Yeah.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Okay. So our employee cost is really — I think it’s dependent on the number of cards that we’re acquiring because that’s where the large population of our employee cost sits. So I’ve already guided you in terms of how the card acquisition is going to be in quarter four for us. I think that should give you an indication that we more or less sign off at a level where — the number of resources we need for that kind of an acquisition is there with us.

Puneet Balani — Nomura — Analyst

Okay, okay. Okay, yeah, that’s it from my side.

Operator

Thank you. The next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.

Shweta Daptardar — Elara Capital — Analyst

Thank you for the opportunity. I have two questions. My first question is, while we have buffers on credit cost then why still the emphasis on EMI segment versus revolver? And secondly, if you could throw some unit economics on the newly-launched SBI Cashback Card. So how it must have translated into potentially new customers? And if there is any ROE dilution fee now? Thank you.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Sorry, Shweta, we couldn’t get your first question either. You had a question on the EMI credit cost.

Shweta Daptardar — Elara Capital — Analyst

Cashback Card which you launched…

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

That was the second question.

Shweta Daptardar — Elara Capital — Analyst

Yeah, that was the second question. First question is, while we have ample buffers on credit cost, you are still lower than the anticipated levels then why the emphasis on EMI segment versus revolver.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

So Shweta, an EMI is something that you can sell the customer and he will take the EMI offer. Revolve is the behavior that the customer chooses to do. What we can do — and that’s what I said when we said we use the buffer is we try and test new segments, we’re trying to get self-employed, we’re trying to get some of the thin file customers that we were not getting is getting some of those customers whose propensity to revolve is higher. Again, the point is propensity to the revolve. I cannot guarantee that they will revolve or they both revolve.

What we have done is we’ve taken a conscious decision to say rather than having no interest income at least you’ll sell them an EMI product and get some degree of interest income. So it’s a zero-one thing. Revolve is something that happened over a period of time, the customer chooses to revolve. I can only bring in those kind of customers. But EMI is something that I can actually get customers convert to it.

Shweta Daptardar — Elara Capital — Analyst

Yeah, fair point.

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

On your second question of the Cashback Card, we are building a portfolio as we have stated last time. So for the first 50,000 accounts that we have got from Cashback Card, we’ve seen excellent spends. They are upwards of INR25,000 to INR30,000 per month. We are also seeing very good activity behavior. Those customers, we see almost 80% to 85% customers using the card every month. They are using the card both for online as well as point-of-sale. While ROA and ROE those metrics are slightly into the future, but all the metrics that we’re seeing for these customers are wonderful. So we will keep an eye, because we also want to see how the installment lending behavior and the asset building behavior of these customers is going to be. So we will keep you people posted.

Shweta Daptardar — Elara Capital — Analyst

Sure. Thank you.

Operator

Thank you. The next question is from the line of Manuj Oberoi from Yes Securities. Please go ahead.

Manuj Oberoi — Yes Securities — Analyst

Yeah. So first question is on the receivable mix. So you’ve given the receivable mix on a closing period basis. Can we get it on a average basis for the quarter?

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

Average basis receivable number?

Manuj Oberoi — Yes Securities — Analyst

Yeah, the mix between EMI, revolver and transactors.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

I take your feedback, Manuj. Let us look in to this.

Manuj Oberoi — Yes Securities — Analyst

Okay. And just the second part is on the corporate spend. So the last quarter we called out that we will be selective here and we will avoid non-remunerative — less remunerative business. But in this quarter, we have seen corporate spends coming back quite strongly. So what is our stance here?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

So see, look at like this. Even now the corporate spends are close to 20% to 21%. And we have always stated that we will not go beyond 25% and stay between 22% to 25% to maintain market share as well as the overall significance in that space. While we continue to look at more profitable segments in that wherever we are able to make some margin, look at some large customers, wherever we have more relationships so that they can get more actual travel and entertainment spends and where we have deeper relationship with our customers. So that is where we are looking at all those customer. And we will continue to maintain it between this ratio.

Manuj Oberoi — Yes Securities — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Anand Dama from Emkay Global. Please go ahead.

Anand Dama — Emkay Global — Analyst

Thank you, ma’am for the opportunity. So basically one first question that I had was that I think ICICI Bank has a tie-up with Amazon and lot of other players also have tie-up with lot of these large e-com players where you tend to get lot of these EMI transactions onboarded. Any plans to have such tie-ups with the e-com players?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

See, while we are open to some of these conversations and we participate with all the RFPs when they come out, even if the RFPs don’t come out because of being a large player in this space, almost all the e-com players get in touch with us also.

We will participate up, but we also want our profitability metrics to be met on some of these accounts. So we already, as you know, we have launched the Cashback Card, which is a proprietary card for us, specifically targeting these segments. And the nature here was that if we have to give it to our partner where they will share that benefit with the customer itself so that customer comes on to our STP journey and applies on their own. So that is the model that we would look to follow. However, if there is a — if we get a partnership which is at the right profitability, matches our customer profile and brand, we would definitely chip in.

Anand Dama — Emkay Global — Analyst

Okay. But do you suggest that the tie-up there which some of the bank have with the e-com players, the overall profitability on those card is relatively lower than what typically you have for your Cashback Card?

Girish Budhiraja — Executive Vice President and Chief Sales and Marketing Officer

I won’t be able to comment on that portion because I don’t know what they’re doing. But one thing is definitely there that when we had looked at some of these partnerships in the past, at least with the large players — large e-commerce players, it was very difficult to find profitability there.

Anand Dama — Emkay Global — Analyst

Okay, okay. Lastly, we have seen a series of attrition in the top management. Any new development over there? Any hiring that we’re doing to replace those people?

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Yes. I think I said last time, selection process is on. And at the [Indecipherable] time we will make announcement. So I mean, as we have filled the position of CFO, so will be the case with any other vacancy. So we will update you as and when there is a announcement.

Anand Dama — Emkay Global — Analyst

Sure. And should we expect to see the CRO replacement in next three months or so?

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Yeah. In fact, endeavor is to get the new person much earlier, but it all depends upon how it will translate. So we will let you know. We will let the largest ecosystem know as and when that [Indecipherable]

Anand Dama — Emkay Global — Analyst

Okay. Thank you, sir.

Operator

Thank you. We’ll take the next question from the line of Sagar from Anand Rathi. Please go ahead.

Unidentified Participant — — Analyst

Hello. Thank you for the opportunity. My first question is on the opening commentary where you all said the traditional revenue streams have been impacted and you all have consciously built scale with eye on future revenue. If you could throw some color on that? And the second question is data-keeping question with regards to the overall mix, overall in terms of cards in-force mix split between salaried and self-employed. Thank you.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

I think this first aspect we have elaborated, we have witnessed. We talked about like major portion of OVL, we haven’t seen as the draw back or anything. It used — for the near future it looks like a major part of it will not be able to regain. And we also talked about a couple of other measures which have been on the pick-up of last quarter. It [Indecipherable] product introduction of processing fees and then processing fee just pick up some EMI transaction for a particular tenant and also cost rationalization or reward point rationalization where it makes sense.

So that is what we said. And of course, I mean, these are not deterring us from focusing on leveraging the opportunity available, that’s the reason we invested and we are making investment for the future. We found a good opportunity to grow last quarter because bank again started contributing very well. I think the best, [Indecipherable] We always design a contribution of 50%, 50% from both the channels and that we were able to accomplish last quarter.

And of course with focus being increasingly on — I mean, acquiring the customers through the digital channels. So for that whatever products need to be launched, they will launched and whatever marketing we need to do, we will do. That is what we said like a through a growth focused strategy we will try to overcome all the segments that is what we said.

Unidentified Participant — — Analyst

Okay. And the second, data-keeping…

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Your second question was around break-up between — break-up of cards in-force in terms of…

Unidentified Participant — — Analyst

Salaried and the self-employed.

Aparna Kuppuswamy — Executive Vice President, Chief Risk Officer

We used to show — so I think even in terms of from fixed perspective also, the self-employed would be around — so the self-employed from assist perspective would still be in the range of 20%, actually lower. I am talking about internally.

Unidentified Participant — — Analyst

Okay. Thank you. This data seen to be missing this quarter. I think that’s why. Thank you. That was all.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ram, MD and CEO of SBI Cards for closing comments.

Rama Mohan Rao Amara — Managing Director and Chief Executive Officer

Thank you all for attending this Q3 FY ’23 earnings call. All the best.

Operator

[Operator Closing Remarks]