SBI Cards IPO consists of an offer for sale of 14% shares and fresh issue of Rs500 crore: Hardayal Prasad, MD & CEO, SBI Card
SBI Card is coming up with a fresh issue of Rs 500 crore and it will be used for growth purposes. The company is supposed to maintain the capital adequacy ratio as per the Reserve Bank of India norms. So, this additional capital will support us in both the things, i.e. to create capital adequacy ratio and simultaneously can support the asset growth.
Hardayal Prasad, Managing Director & CEO, SBI Cards & Payment Services Pvt Ltd, speaks about SBI Card's IPO, expectation from it and digital payments during an interview with Sandeep Grover, Zee Business. Edited Excerpts:
Q: Give us an idea about how much company is raising from the fresh issue and how much through OFS? Also, tell us how the funds raised through the fresh issue will be used?
A: SBI Card is coming up with a fresh issue of Rs 500 crore and it will be used for growth purposes. The company is supposed to maintain the capital adequacy ratio as per the Reserve Bank of India norms. So, this additional capital will support us in both the things, i.e. to create capital adequacy ratio and simultaneously can support the asset growth. The offer for sale (OFS) stands at 14% of which 4% stakes will be divested by SBI, while Carlyle is set to sell 10% of its stake and this entire 14% will go back these two companies.
Q: It is the fifth-biggest IPO in India and investors are quite interested in it. So, what the management is expecting from the IPO amid a huge sell-off in the market and the kind of subscription is expected for it?
A: We don't comment on what is happening in the market but we look at the kind of interest that the anchors, to whom the shares were offered, had. Interestingly, the anchors have subscribed it completely and the anchor book is fully subscribed. The anchor book includes marquee investors and it includes the sovereign funds, large investors and mutual funds. So, I think these things are giving a clear indication that good investors are being invited and its entire book has been subscribed.
Q: If we have a look on fundamentals or business then we find that Credit card penetration in India has been very low around 7% compared to the US where the ratio is more than 300%. So what is your outlook on the credit cards industry growth in the next five years?
A: 58% of our sourcing comes from Tier-II and Tier-III cities. I am not saying that we are fully penetrated in the rural areas but credit card penetration has started in tier-II, tier-III and tier-IV cities. It has started because the number of point of sale (POS) terminal has gone up from 1.1 million in 2015 to 4.3 million today. Similarly, two-third sales of e-commerce come from tier-II and tier-III cities and this is being reported by Amazon, Flip kart and others. Similarly, there is an increase in the app-based systems that is available on phones where the credit/debit cards - that is attached to them - is used for making payments. These are the things that are indicating that people are moving towards digital from cash. There was a time when cash was needed for almost every purpose from buying foods to taxi travels but each one of them has gone digital today where credit cards are used for making payment. Thus, it is a clear indication that it has a scope in India and it must not be compared with other countries because India is a different country where the penetration was quite low in tier-II and tier-III, however, it is increasing now. It seems that credit card usage and digital products are likely to go up.
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Q: What impact digital payment will have on the company in the recent future?
A: Demonetisation had a major impact as it increased the usage of almost all digital products may it be UPI or PPI or e-wallets. It also increased the penetration of credit cards. So, demonetisation is a landmark event that pushed the economy from cash towards a less-cash economy. If you have a look in terms of overall spends then the credit card industry runs on spends and if you are increasing your spends then it will have a major impact as spends help in the creation of assets, creating revenue streams and managing the stress on assets. The methodology of managing the stress has changed a lot today because credit bureau and IT infrastructure has strengthened a lot by now. Secondly, the information provided in an application is good and it helps in improving the credit culture of an individual in India. Thus, we are moving in the right direction and that's why the delinquency rate is very low in the case of the credit card. It is stable, low, manageable and has been planned in accordance with risk and rewards.
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