Amongst a lot of IPOs in the news, SBI Cards IPO stands a bit different. On the one hand, it is a capital enhancement opportunity for the company, while on the other hand, it will see India's biggest ever PE Exit. This piece is about how an SBI owned company bets on its future through this IPO.
What is SBI Cards?
One thing we must be clear before everything else, credit cards offered by the banks are different from the banks. If you just want to offer a credit card, you do not necessarily need to be a bank. You may be just another NBFC entity approved by RBI to do so. This is why you can now see some new credit cards coming like 'PayTM First' and 'Amazon Pay Credit Card.' Hence, they are independent of the bank, technically.
This is the case with SBI Cards as well. SBI credit card is not issued by SBI Bank but by the 'SBI Cards and Payment Services Private Limited,' popularly known as 'SBI Cards.'
SBI Bank (74%) jointly owns SBI Cards with the Carlyle Group (26%). The Carlyle Group is a private equity (PE) firm. It invests in the initial phases of business and then exits when the company is ripe. Carlyle Group now sees an opportunity to give away 10% of holding while SBI only 4%. Since this 10% dilution amounts to ₹ 6500 crores, this is being dubbed as India’s largest ever PE exit.
India’s Credit Card Market
India is considered more of a 'savings' country. People tend to buy less, invest even less, and save more. The credit cards have not been very much welcomed when compared to the debit cards or other non-cash payment instruments. This manifests in numbers, as well. Credit cards per 100 persons in India are 2.2 while in the USA it is 320! It means an individual carries 3-4 cards at an average. We even lag behind Brazil.
However, the trend has been changing. There has been more push towards digital modes by the government. The other pie of thanksgiving goes to the e-commerce websites like Amazon and Flipkart that come with offers on credit cards in every sale. New players like ‘Cred’ are incentivizing payment through credit card.
Credit card owners have increased from 3.5 crores to 4.8 crores in just the last financial year. This is a considerable number. No doubt, PayTM and Amazon Pay like wallets based platforms have come up with their credit cards. However, despite the increasing number of cardholders, average card spending has remained stagnant.
What is SBI Cards IPO about?
SBI Cards is one of the most prominent players in the Credit Cards business. It owns 18% of market share and is second only to HDFC Cards (27%). Considering a stiff competition from 73 other issuers, SBI Cards market share looks promising. Even its share in total credit card also spends 17.9% of the market share.
This is when, as mentioned already, India's credit market is underdeveloped, and vast chunks of consumers have yet remained untouched.
SBI Cards is planning to go all guns blazing with this IPO. The valuation stands around 65 thousand crores. They are expecting an annual growth (CAGR) of 25%, which seems to be quite realistic owing to experts who say that the Indian credit card market shall grow at a CAGR of 27%.
In 2018, SBI had six crores cards in the market, which skyrocketed to a whopping nine crores by the end of 2019.
The Road Ahead
The Credit Card industry is definitely on the rise. It might see its golden period soon because of the immense competition of companies, each backed by heavyweights. SBI Cards IPO will also mean that other players would want to get listed too.
The convenience of technology, the luring offers on websites, the EMI offers on cards, and expanding payment infrastructure will all contribute to its growth fuelled by the millennials. The spending is changing.