Rationale

 The ratings factor in the strong parentage of SBI Cards and Payment Services Limited (SBICPSL) with a majority stake held by India's largest public-sector bank (PSB), i.e. State Bank of India (SBI; rated [ICRA]AAA (Stable)/[ICRA]A1+). As the credit card business is a key product offering to the bank's customers, SBICPSL is strategically important for SBI. This is reflected in the bank's track record of providing branding, funding and capital support to the company. ICRA believes that SBI will continue to hold a majority stake in SBICPSL and support from the parent will continue, going forward as well. The ratings factor in SBICPSL's strong liquidity position and the track record of strong profitability with an eight-year average (FY2015 to FY2022) return on assets (RoA) and return on equity (RoE) of 4.5% and 27.1%, respectively. The ratings also factor in the company's adequate capitalisation for the current scale of operations, with a capital to risk weighted assets ratio (CRAR) of 24.7% and a gearing of 3.0 times as on June 30, 2022. With the easing of the asset quality pressure, the resultant credit cost {in relation to average total assets (ATA)} declined to 7.0% and 4.9% in FY2022 and Q1 FY2023, respectively (compared to the eight-year average of 4.5%), from 8.1% in FY2021 due to the strong post-Covid-19 pandemic recovery. ICRA also notes that SBICPSL enjoys adequate capital and profitability buffers to absorb asset-side shocks emanating from any future events. ICRA also notes the improvement in the profitability in Q1 FY2023 with the RoA and RoE increasing to 6.8% and 31.1%, respectively, largely driven by the decline in credit costs. Post the pandemic-led disruptions and the resultant slowdown in the economy, SBICPSL's portfolio vulnerability has declined due to the good quality of the incremental book, driven by tighter sourcing norms. This is reflected by the decline in the gross non-performing advances (GNPAs) to 2.24% as on June 30, 2022 and 2.22% as on March 31, 2022 from 4.99% as on March 31, 2021. Further, the standard restructured book declined to 0.43% as on June 30, 2022 from 4.9% as on March 31, 2021. However, ICRA notes SBICPSL's intention to recalibrate its risk appetite due to the comfort derived from the decline in the asset quality pressures. It plans to increase the interest income generating assets in the overall portfolio mix further. The evolving trajectory of the asset quality due to SBICPSL's strategic decision to recalibrate its risk appetite will remain a key monitorable. In this regard, SBICPSL's track record of range-bound asset quality metrics provides comfort. While reaffirming the ratings, ICRA continues to note SBICPSL's monoline nature of operations. The company's portfolio remains relatively risky, with only 1.1% of the same being secured in nature as on March 31, 2022.