Weak Q3 FY24 performance weighs on SBI Card, AU Small Finance Bank- QHN

SBI Card’s provisions rose by 19.1 per cent quarter-on-quarter (QoQ) to Rs 882.9 crore from Rs 741.6 crore, and credit cost inched up to 7.5 per cent from 6.7 per cent in Q2

The shares of SBI Card and AU Small Finance Bank (AU SFB) went down by 6.56 per cent and 11.83 per cent on the National Stock Exchange on Monday after the companies reported weak performance in the third quarter of financial year 2023-24, analysts said.

SBI Card posted an 8 per cent year-on-year (YoY) rise in net profit to Rs 549 crore. The total revenue grew by 30 per cent YoY to Rs 4,742 crore. However, the profit of the company slipped 4 per cent sequentially.

SBI Card’s provisions rose by 19.1 per cent quarter-on-quarter (QoQ) to Rs 882.9 crore from Rs 741.6 crore, and credit cost inched up to 7.5 per cent from 6.7 per cent in Q2. The cost of funds of the company increased to 7.6 per cent from 7.1 per cent in Q2 FY24.

Analysts downgraded the stock tracking elevated provisions, interest rates, and funding costs. Further, the Reserve Bank of India (RBI)’s decision to increase the risk weights for unsecured loans has also impacted the company’s financials, dampening the outlook for the upcoming quarter (Q4).

“SBI Card reported a sub-par quarter, characterised by elevated provisions. The outlook on margins remains weak due to a sharp rise in funding costs. The mix of revolvers and EMI loans remains stable, while the management indicated that the recent hardening of interest rates, along with the impact of risk weights, will exert pressure on funding costs in the coming quarters. As a result, margins should remain muted in Q4 and 1H FY25,” noted a post-earnings research note by Motilal Oswal.

The asset quality of the company was also under pressure, with Gross Non-Performing Assets (GNPA) rising to 2.64 per cent from 2.43 per cent sequentially, and net NPA inching up to 0.96 per cent from 0.89 per cent in Q2 FY24.

A research note by Elara Securities pointed out vague guidance and lingering challenges while adding it expects an average credit cost of 7.3%, resulting in Return on Assets (ROA) dipping to less than 5% with a Return on Equity (ROE) of 22-23% over FY24-26E.

Similarly, AU Small Finance Bank was also under pressure, tracking a decline in asset quality and weakening net interest margin (NIM) in the October-December quarter of financial year 2023-24.

The NIM of the bank came down to 5.5 per cent in Q3 FY24 from 6.2 per cent in Q3 FY23. Although the NIM was flat sequentially, as it was aided by the benefits of securitisation. As per analysts at Motilal Oswal, excluding the securitised book, NIM moderated by 30 basis points in the current quarter. However, including the securitised book, NIM stood at 5.5 per cent in Q3 FY24.

The asset quality of the bank worsened, with GNPA rising to 2 per cent from 1.9 per cent in Q2 FY23 and net NPA inching up to 0.7 per cent from 0.6 per cent.

“AU SFB reported Q3 results that showed that its asset quality deteriorated in Q3, while margins continued to compress and stood at the lower end of the guided range,” noted Deepak Jasani – Head Retail Research, HDFC Securities.

First Published: Jan 29 2024 | 7:06 PM IST