SBI Cards & Payment Services (SBI Card), India’s only listed pure-play credit card company, is selling Rs 200 crore of delinquent loans in the second quarter of the current financial year.

The credit card company, backed by its parent the State Bank of India, has been in talks with asset reconstruction companies (ARCs) for buying its unsecured assets.

This is the second consecutive quarter SBI Card is showcasing its bad loans to the ARCs after selling an equal quantum in the June quarter, as stress has crept into its books. A source said Encore ARC bought Rs 200 crore of bad loans from SBI Card in the first quarter of this fiscal. 

“The first and particularly the second wave of Covid left a footprint of delinquencies for all institutions and SBI Card, working in the same ecosystem, was no exception.  For now, we are trying to get out of a certain group of customers. We are selling off these loans so the company can focus on fresh lending while cherry-picking customers along the way,” a senior official told Indianbankingnews.com. 

This, however, will be a short-term plan to fix the bad loan problem. “The sale to the ARCs will not be an ongoing strategy,” the official added. 

Due to the coronavirus pandemic, many people have moved to their parental homes in smaller towns to keep costs under check. A change in locations has led to issues on tracking down these customers. Many have also lost their jobs or faced salary cuts.

“SBI Card will look to exit their relationship with certain profile of customers. Credit cards are sometimes used to cover the shortfalls in EMI payments towards the car or home loans. Default in credit card payment is the last option exercised by the customers because of the high cost of interest involved,” the source said. 

The resurgence of Covid in the second wave continued to impact this unsecured asset quality. SBI Card’s gross non-performing assets (NPAs) more than doubled to 3.91% of gross advances to Rs 643 crore during the quarter ended June 30, 2021. The total gross advances or the credit card receivables rose 5% to Rs 24,438 crore. 

“Credit filters are in place so we have tightened eligibility criteria for new customers,” SBI Card managing director and CEO Rama Mohan Rao Amara told analysts in an earnings call after announcing its fiscal first-quarter performance.

The RBI ban on HDFC Bank to issue new credit cards due to technology issues worked to the advantage of SBI Card. For the cards arm of SBI, card-in-force grew 14% to 1.20 crore from 1.06 crore a year ago.

Card spends during the June quarter rose to Rs 33,260 crore from Rs 19,085 crore a year ago. Retail spends rose 63% to Rs 27,000 crore while the corporate spend grew 149% to Rs 6,100 crore. The company’s net profit dipped 22% to Rs 305 crore for the quarter ended June 30, 2021, from Rs 393 crore in the year-ago period.