The State Bank of India has said it is back to growing its credit card business after shrinking its card base by 16% and turning around the business. The bank is now targetting the upper-middle class with a Platinum Card that offers a wide range of benefits and has a low-entry barrier.
SBI Cards, a 60:40 JV between SBI and GE Capital, was expected to turn around by March 2011 but has managed to turn in a profit in the quarter ended September 2010. The cards company had reported a loss of Rs 321 crore for 2008-09, which included a deferred tax asset writeoff of Rs 135 crore on a total income of Rs 757 crore.
Despite the losses, SBI Cards' pullback has been the least and it has been the fastest to rebound to the growth mode. "The whole industry had seen a 33% drop in the number of cards from 27-28 million to 18 million. Against this, the number for SBI Cards has come down from 3.1 million at its peak level in 2008 to around 2.6 million now," said State Bank of India chairman OP Bhatt. The bank now plans to issue at least 40,000 cards every month.
But the key difference is that unlike in the past, when cards were sold by marketing agents at petrol pumps, they are now being sold largely to customers at bank branches.
The bank now aims to increase its customers in the high net worth segment, which is more profitable as it is more high-spending and less prone to defaults. The company plans to increase its customer base in the high net worth segment from 5% to over 50%. To achieve this goal, it's offering a host of benefits with the Platinum Card. These include 10 cash points for every. 100 spent and up to three Kingfisher Airline return air tickets every year.
According to SBI Cards CEO Abhay Kumar Singh, the company has learnt from the industry's excesses of 2007-08. "There is no mad rush for land grab or market share," he said, adding that prudent decisions on issuing cards have helped bring down loan losses to single-digit levels.
"Acquiring customers through SBI branches helps us know the customer far more than we can otherwise. That gives SBI Cards a better understanding of the customer preferences as well as helps us plan the product mix and customer value proposition," said GE Capital president and CEO Anish Shah.
Mr Bhatt said he expects the central bank to maintain status quo or at best raise rates by 25 basis points in its half-yearly review of its monetary policy. He added that the central bank has a tough choice because even without RBI action, there was tightness in the money markets, but at the same time, inflation had not come down to comfortable levels.
Mr Bhatt said the year-on-year growth in credit for SBI was around 18% and scaling up advances to achieve a 20%-plus levels would be tough. Although money markets were witnessing a shortfall in liquidity, the SBI chairman said the bank was comfortably placed. "There was a time when there was a shortage of liquidity. From there, we moved to a position when there was a liquidity overhang. Today, we are in a position where we are just right in terms of liquidity," he said. He added that any decision on reviewing its lending rates would be based on how its cost of funds move.
SBI, which raised $1 billion through an issue of medium-term notes in the second quarter, is now looking at a fresh issue before the end of the year. Mr Bhatt said the bank has not yet finalised the size of its issue, but it was likely to be smaller than the $1-billion offering.
