Shares of SBI Cards and Payment Services Ltd fell as much as 7% in intraday trade on Monday after the company reported elevated credit costs and weak net interest margin in the September quarter of the current fiscal.

The stock opened at ₹750.30 against its previous closing price of ₹791.05 apiece on the BSE. Shares of SBI Cards slipped 7% to hit a low of ₹732.05, below its IPO price of ₹755.

According to Goldman Sachs, SBI Cards reported 'poor quality' earnings. The management commentary was worrisome with stress building in unsecured loans, the foreign brokerage says. Goldman Sachs has a 'sell' rating on the stock with a price target of ₹684.

Meanwhile, Jefferies maintains a 'buy' rating on the stock but cut its price target to ₹1,020. The brokerage expects credit costs to take longer to recover due to the uptick in stress in unsecured loans.

Net profit of SBI Cards rose 15% year-on-year to ₹603 crore for the quarter ended September on higher interest income.

The State Bank of India’s credit card arm had reported a net profit of ₹526 crore in the previous quarter a year earlier.

The total income in the second quarter of the ongoing fiscal rose 22% to ₹4,221 crore, from ₹3,453 crore a year ago, SBI Cards says in a regulatory filing. The interest income increased 28% to ₹1,902 crore in Q2 FY24 as against ₹1,484 crore in Q2 FY23. Fees and commission income increased by 23% to ₹1,974 crore in Q2 FY24 compared with ₹1,611 crore in Q2 FY23.

Finance costs increased by 64% at ₹605 crore in Q2 FY24 compared with ₹368 crore in Q2 FY23. The company’s total operating cost increased by 13% at ₹2,066 crore in Q2 FY24 from ₹1,834 crore in Q2 FY23. Earnings before credit costs increased by 24% at ₹1,551 crore in the second quarter as against ₹1,252 crore in Q2 FY23.

On asset quality, the gross non-performing assets were at 2.43% of gross advances as of September 30, 2023, as against 2.35% as of March 31, 2023. Net non-performing assets were at 0.89% as of September 30, 2023, as against 0.87% as of March 31, 2023.

Net NPAs (bad loans) also rose to 0.89% from 0.78% in the corresponding quarter of last year.

On capital adequacy, the company said the ratio was at 23.3% at the end of the second quarter, from 23.2% at the end of September 2022.

SBI Cards and Payment Services is a non-banking financial company that offers an extensive credit card portfolio to individual cardholders and corporate clients which includes lifestyle, rewards, travel and fuel, and banking partnerships cards along with corporate cards covering all major cardholders' segments in terms of income profile and lifestyle.

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