SBI Cards sees spike in bad loans on impact of Covid-19

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SBI Cards & Payment Services Ltd. reported a sharp rise in bad debts for the July-September quarter on Thursday due to defaults caused by the Covid-19 crisis.

NBFC credit card, a subsidiary of India’s largest lender State Bank of India, reported a gross non-performing assets ratio of 4.3% vs. 1.4% as of June 30, an increase of 290 points basic.

The increase in bad debts would have been more marked if a Supreme Court order had not stood in the way. In the Gajendra Sharma v Union of India case, commonly known as the interest on interest case, the country’s highest court ordered lenders not to demote accounts in the NPA category after August 31.

Although the Supreme Court order caused uncertainty in how lenders could identify NPAs, it gave them more time to invoke the Reserve Bank of India’s unique restructuring plan announced on 6 August, Ashwini Kumar Tewari, managing director and managing director of SBI Card, told analysts on a conference call. “I wouldn’t say we’re at the peak of the moratorium problem.”

Most of the tensions over the quality of the company’s assets, according to Tewari, are concentrated in accounts that had been subject to a moratorium between March and August. “These are accounts that belong to independent borrowers, added through our acquisition of clients in the open market. The clients added from our deal with SBI actually performed better than the rest of the book, ”Tewari said.

According to the investor presentation released by SBI Card, around 9% of the company’s bad credit loans portfolio falls under the Reserve Bank of India’s unique restructuring plan announced on August 6.

Due to the sharp rise in bad debts, SBI Card saw its net profit drop 46% to Rs 206 crore at the end of the July-September quarter from Rs 381 crore a year ago.

Total income increased 5.76% to Rs 2,513 crore. Total expenses increased by 19% to Rs 2,234 crore.

A “management overlay provision” of Rs 268 crore in the second quarter, bringing total provisions to Rs 758 crore as of September 2020. Impairment and bad debt charges in the second quarter amounted to Rs 862 crore in the quarter compared to Rs 329 crore a year ago.

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