Mumbai, NFAPost: SBI Cards and Payment Services Limited (“The Company”, “SBI Card” or “Issuer”), proposes to open on 2 March, 2020, an initial public offering (IPO) of face value of Rs.10 each (“Equity Shares”).
Each equity shares will have a price band from Rs. 750 to Rs. 755 including a share premium and comprises of a fresh issue of equity shares aggregating to Rs. 5,000 million (“Fresh Issue”) and an Offer for Sale of up to 130,526,798 Equity Shares (“The Offered Shares”).
It will also include up to 37,293,371 Equity Shares by State Bank of India (“SBI”) (“Promoter Selling Shareholder”) and up to 93,233,427 Equity Shares by CA Rover Holdings (“CA Rover”) (“ Investor Selling Shareholder” and together with promoter selling shareholder, the “Selling Shareholders” and such offer, the “Offer For sale” and together with the Fresh Issue, The Offer).
Bids can be made for a minimum of 19 Equity Shares and in multiples of 19 Equity Shares thereafter. The Bid/ Offer will close on 5 March, 2020. The Equity Shares offered through this Red Herring Prospectus are proposed to be listed on the BSE and NSE.
The Offer includes a reservation of up to 1,864,669 equity shares for subscription by eligible employees (as defined hereinafter) (The Employee Reservation Portion) and a reservation of up to 13,052,680 equity shares, for subscription by SBI by SBI Shareholders (As defined hereinafter) (“The SBI Shareholder Reservation Portion”).
An employee discount of 7 751- per Equity Share will be offered to Eligible Employees in accordance with the terms and conditions stipulated in the Red Herring Prospectus dated February 18,2020 (“RHP”). A
The Offer less the employee reservation portion and the SBI shareholders reservation portion is hereinafter referred to as the “Net Offer” aggregating up to [●] Equity Shares.
The Offer is being made in terms of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957, as amended, (the “SCRR”) read with Regulation 31 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (“SEBI ICDR Regulations”).
The Offer is being made through the Book Building Process, in compliance with Regulation 6(1) of the SEBI ICDR Regulations, where not more than 50% of the Net Offer will be Allotted on a proportionate basis to Qualified Institutional Buyers (“QIBs”) (the “QIB Category”), provided that our Company and the Selling Shareholders in consultation with the BRLMs, may allocate up to 60% of the QIB Category to Anchor Investors, on a discretionary basis (the “Anchor Investor Portion”), of which one-third shall be reserved for domestic Mutual Funds, subject to valid Bids being received from domestic Mutual Funds at or above the price at which Equity Shares are allocated to Anchor Investors.
Further, 5% of the QIB Category (excluding the Anchor Investor Portion) shall be available for allocation on a proportionate basis to Mutual Funds only and the remainder of the QIB Category shall be available for allocation on a proportionate basis to all QIBs (other than Anchor Investors), including Mutual Funds, subject to valid Bids being received at or above the Offer Price. Further, not less than 15% of the Net Offer shall be available for allocation on a proportionate basis to Non-Institutional Investors and not less than 35% of the Net Offer shall be available for allocation to Retail Individual Investors, in accordance with the SEBI ICDR Regulations, subject to valid Bids being received at or above the Offer Price.
All Bidders (other than Anchor Investors) shall mandatorily participate in this Offer through the Application Supported by Block Amount (“ASBA”) process, and shall provide details of their respective bank account (including UPI ID for Retail Individual Investors using UPI Mechanism) in which the Bid Amount will be blocked by the SCSBs or the Sponsor Bank, as the case may be. Anchor Investors are not permitted to participate in the Anchor Investor Portion through the ASBA process.
The Book Running Lead Managers (“BRLMs”) to the Offer are Kotak Mahindra Capital Company Limited, Axis Capital Limited, DSP Merrill Lynch Limited, HSBC Securities and Capital Markets (India) Private Limited, Nomura Financial Advisory and Securities (India) Private Limited, SBI Capital Markets Limited*.
* SBI is proposing to participate as a Selling Shareholder in the Offer for Sale. SBI Capital Markets Limited (“SBICAP”) has signed the due diligence certificate and has been disclosed as a BRLM for the Offer. SBI and SBICAP are associates in terms of the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992, as amended (the “SEBI Merchant Bankers Regulations”). Accordingly, in compliance with the proviso to Regulation 21A of the SEBI Merchant Bankers Regulations and Regulation 23(3) of the SEBI ICDR Regulations, SBICAP would be involved only in the marketing of the Offer.
**The Company and the Selling Shareholders in consultation with the BRLMs may consider participation by Anchor Investors, in accordance with the SEBI ICDR Regulations. The Anchor Investor Bidding Date shall be one Working Day prior to the Bid/Offer Opening Date.
*** The Company and the Selling Shareholders in consultation with the BRLMs may decide to close the Bid/Offer Period for QIBs one Working Day prior to the Bid/Offer Closing Date.
According to RBI, SBI Card is the second-largest credit card issuer in India both in terms of numbers of credit cards outstanding and amounts of credit card spends, with 9.83 million credit cards outstanding as of November 30, 2019 and Rs1,03,265 crore in total of credit card spends in fiscal 2019.
SBI Card is the second-largest credit card issuer in India, with a 17.6% and 18.01% market share of the Indian credit card market in terms of the number of credit cards outstanding as of March 31, 2019 and November 30, 2019, respectively, and a 17.1% and 17.9% market share of the Indian credit card market in terms of total credit card spends in fiscal 2019 and in the eight months ended November 30, 2019, respectively, according to the RBI.
Growth in credit card spends
From March 31, 2017 to March 31, 2019 our total credit card spends grew at a 54.2% CAGR (as compared to a 35.6% CAGR for the overall credit card industry, according to the RBI) and the number of our credit cards outstanding grew at a 34.5% CAGR (as compared to a 25.6% CAGR for the overall credit card industry, according to the RBI).
Diversified customer acquisition network
SBI Card has a diversified customer acquisition network that enables us to engage prospective customers across multiple channels. SBI Card deploys a sales force of 32,677 outsourced sales personnel as of December 31, 2019 operating out of 145 Indian cities. It engages prospective customers through multiple channels, including physical points of sale in bank branches, retail stores, malls, fuel stations, railway stations, airports, corporate parks and offices, as well as through tele-sales, online channels, email, SMS marketing and mobile applications.
SBI Card is the leading player in open market customer acquisition in India according to the CRISIL Report. SBI Card had a presence in 190 open market points of sale across India as of December 31, 2019.
When a point of sale is not directly managed by SBI Card, the company works with 12 non-bank co-brand partners and nine co-brand bank partners, as of December 31, 2019, using their distribution network (including our co-brand partners’ retail outlets), communication channels and customer interactions to market our credit card products to their existing customers. Out of the aforesaid outsourced sales personnel, SBI Card has 173 outsourced workforce for tele-sales.
In terms of new accounts sourced by geographic category, SBI Card added a total of 2.36 mn (as of December 31, 2019) – break up as 1.07 mn from Top 8 Metropolitan Areas (as of December 31, 2019); 0.46 mn from Tier II metropolitan; 0.36 mn from Tier III metropolitan; 0.67 mn from others.
SBI Card partnership with SBI provides us with access to SBI’s extensive network of 21,961 branches across India, which enables us to market our credit cards to SBI’s vast customer base of 445.5 million customers as of December 31, 2019.
In October 2017, SBI Card launched Project Shikhar as a joint effort between us and SBI to market the credit card products directly to SBI’s customers. Since its implementation, Project Shikhar has significantly increased the proportion of new accounts sourced from SBI’s existing customer base from 35.2% of all new accounts in fiscal 2017 to 45.5% in fiscal 2018 and 55.2% in fiscal 2019.
The company has also integrated digital customer acquisition platform with the SBI YONO interface, which enables SBI Card to market products to SBI’s customers through the SBI YONO mobile application. In fiscal 2019, 45% of SBI Card credit card applications were decisioned by credit decision engines without human intervention.
· bank branch networks of our nine bank co-brand partners across India;
· physical presence in 12 non-bank co-brand partner retail locations and nine bank co-brand partner branches as of December 31, 2019;
SBI Card extensive physical customer acquisition network is complemented by our digital sales and marketing capabilities which include our website, mobile application and online, email and SMS marketing platforms.
Credit card portfolio
SBI Card credit card portfolio caters to individual cardholders and corporate clients, and includes lifestyle, rewards, travel and fuel, shopping, banking partnership cards and corporate credit cards. We offer four primary SBI-branded credit cards: SimplySave, SimplyClick, Prime and Elite, each catering to a varying set of cardholder needs.
Lifestyle cards: SBI Card lifestyle credit cards target cardholder segments with similar lifestyle interests. In this category, the company offers the following credit cards: SBI Card ELITE; SBI Card ELITE Advantage and Doctor’s SBI Card. The annual fees we charge under our lifestyle credit cards range from Rs1,499 to Rs 4,999.
· Rewards: SBI Card rewards credit cards give cardholders a range of benefits such as gift vouchers and accelerated rewards points accrual when they make purchases. We offer the following credit cards in the rewards category: SBI Card PRIME; OLA Money SBI Card; Apollo SBI Card; SBI Card PRIME Advantage; Tata Platinum Card; Tata Titanium Card. The annual fees we charge under our rewards credit cards range from Rs 499 to Rs 2,999.
· Shopping: in our shopping credit cards category, SBI Card partners with department stores, specialty retailers, mass merchandisers and e-retailers to offer co-brand credit cards that allow our cardholders to earn bonus rewards on shopping categories in addition to other benefits such as shopping vouchers. SBI Card offers the following credit cards under this category: SimplyCLICK SBI Card; SimplySAVE SBI Card; fbb SBI STYLEUP Card; Central SBI Select+ Card; Central SBI Select Card; SBI Card Unnati; SimplyCLICK Advantage SBI Card; SimplySAVE Advantage SBI Card; and Shaurya SBI Card. The annual fees we charge under our shopping credit cards range from Rs 499 to Rs 2,999.
· Travel and fuel: SBI Card travel and fuel credit cards generally rely on co-brand partners within the travel industry and offer reward points that cardholders can redeem on specific travel and fuel-related categories. These credit cards also offer special travel-related benefits, such as complimentary airport lounge access, and fuel surcharge waivers. We offer the following credit cards in the travel and fuel category: Etihad Guest SBI Premier Card; Etihad Guest SBI Card; BPCL SBI Card; Yatra SBI Card; Air India SBI Signature Card; Air India SBI Platinum Card; Chennai Metro SBI Card; and IRCTC SBI Platinum Card. The annual fees we charge on our travel and fuel credit cards range from ₹499 to ₹4,999.
· Banking partnerships: SBI Card banking partnerships credit cards are offered to customers of co-brand partner banks. SBI Card offers credit cards in the banking partnerships category to customers of the following co-brand partner banks: Allahabad Bank; Karnataka Bank; South Indian Bank, Karur Vysya Bank; Oriental Bank of Commerce, Bank of Maharashtra and one other bank. The annual fees we charge under our banking partnerships credit cards range from Rs 499 to Rs 4,999.
· Business: SBI Card business credit cards are tailored for the needs of our SME clients. SBI Card offers the following credit cards in the Business category: SBI Card ELITE Business, SBI Card PRIME Business and SBI Card Vyapar Unnati.
As of December 31, 2019 and March 31, 2019, SBI Card personal cards portfolio had 9.99 million and 8.23 million total cards outstanding, respectively, representing 99.5% and 99.56%, respectively, of the company’s total number of credit cards outstanding as of those respective dates.
For the nine months ended December 31, 2019 and fiscal 2019, SBI Card personal cards portfolio accounted for Rs 75,942 crore and Rs 73,744 billion total credit card spends representing 77.5% and 71.6%, respectively, of our total credit card spends for those periods.
SBI Card offers corporate credit cards to various corporate segments in India, including MNCs, large and mid-sized Indian companies, state owned enterprises and travel management companies. SBI Card corporate credit cards are tailored for the diverse needs of corporate clients, including:
· General corporate: SBI Card general corporate credit cards are tailored to offer expense management solutions to corporate clients that have a large employee base. The corporate client’s employee is the end user of general corporate credit cards.
· Central travel account: SBI Card central travel account corporate cards are tailored for bulk buying and inventory purchasing from airlines, hotels and travel consolidators.
· Utility: SBI Card utility corporate cards provide our corporate clients with the functionality to make multiple utility bill payments (telecommunications, electricity, water, gas, etc.) in a single transaction.
· Corporate purchase: SBI Card corporate purchase credit cards provides payment solutions for business-to-business vendor payments and drives savings for corporates through extended payment terms. The end user of SBI Card corporate purchase credit cards is corporate client’s procurement or finance team.
SBI Card offers the following corporate credit cards: SBI Signature Corporate Card; SBI Platinum Corporate Card; SBI Central Travel Account Card; SBI Corporate Utility Card; SBI Corporate Purchase Card; and the SBI Corporate Virtual Card. Some of corporate credit cards are provided free of annual fees, while other corporate credit cards are charged annual fees of up to ₹499.
SBI Card corporate cards are highly customizable for our corporate clients’ specific types of purchases and functionalities.
As of December 31, 2019 and March 31, 2019, SBI Card corporate cards portfolio represented 0.5% and 0.4%, respectively, of total number of credit cards outstanding as of those respective dates. For the nine months ended December 31, 2019 and fiscal 2019, SBI Card corporate cards portfolio accounted for Rs 22,012 crore and Rs 293.69 billion in total credit card spends, respectively, representing 22.5% and 28.54%, respectively, of total credit card spends for those respective periods.
White Label Cards
White label credit cards are partner-branded credit cards that carry the brand partner’s logo without the SBI Card logo. SBI Card currently offers one white label credit card in partnership with Tata Sons.
SBI Card offers several value-added services as a part of our credit card products suite. These services include:
· ATM cash – facility allowing cardholders to withdraw cash via ATMs using their SBI credit card, limited to the cash advance limit available on the cardholder’s credit card account.
· Easy money – personal loans offered to cardholders within their existing cash advance limit on their credit cards.
· Encash – personal loans offered to select cardholders over and above their existing credit card limit.
· Encash Inline – personal loans offered to select cardholders within their existing credit card limit.
· Flexipay – allows cardholders to pay for retail purchases in a number of equated monthly installments.
· Balance transfer – allows cardholders to transfer their existing balances on other bank’s credit cards to their SBI credit card.
Largest co-brand credit card issuer
SBI Card are also the largest co-brand credit card issuer in India according to the CRISIL Report, and offers a wide portfolio of co-brand credit cards in partnership with several major players in the travel, fuel, fashion, healthcare and mobility industries, including Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, the IRCTC, OLA Money and Yatra, among others.
SBI Card has fully operational co-brand credit card programs in place with 21 co-brand partners, including partnerships with several major retailers, airlines, railway operators, department stores, banks, specialty retailers and mass merchandisers, among others. SBI Card has also entered into agreements with three additional co-brand partners, which programs are currently in the process of becoming operational.
SBI Card offers a co-brand credit card that is specifically targeted at medical doctors, which offers specialized medical professional liability insurance to its cardholders.
In addition, SBI Card also offera highly customizable corporate cards to our corporate clients that can be tailored for specific types of purchases and functionalities. In our experience, our ability to provide such specialized credit card products across several cardholder segments allows us to deliver a more compelling value proposition, tap into several specialized consumer segments and strengthen our long-term relationships with our cardholders.
SBI Card launched six new products in the nine months ended December 31, 2019, as compared to four new products in fiscal 2019 and six and seven new products in fiscals 2018 and 2017, respectively.
Investments in technology
From fiscal 2017 to fiscal 2019, SBI Card invested ₹519.88 million in our core technology systems and in building brand new peripheral applications, such as online customer acquisition, online servicing, customer relationship management, fraud management and credit risk applications.
In addition to the operating efficiencies derived from the company’s technology systems, SBI Card believes that the cost and knowledge associated with the development, operation and maintenance of a technology system like SBI Card represents a significant barrier to entry for potential new entrants to the Indian credit card market. As a result, our technology infrastructure and systems are a key competitive strength for SBI Card.
Leveraging on our technology infrastructure, in fiscal 2019 and as of December 31, 2019, we sent on an average 91.4% and 93.0% of all billing statements to cardholders by e-mail and the remainder by post, on an average 92.9% and 96.14% of our bill payments were handled as digital payment modes. We also send SMS communications informing cardholders of statement generation, amounts due and the due date for payment.
The interest that SBI Card earns on revolving credit card balances and monthly instalment balances comprised 51.7% and 51.0% of the company’s total revenue from operations in the nine months ended December 31, 2018 and 2019 , respectively, as compared to 51.1% in fiscal 2019, 53.2% in fiscal 2018 and 56.4% in fiscal 2017.
SBI Card has established a proven track record of consistently generating profits over the past three fiscal years. SBI Card’s total income increased from Rs 34,710.38 million in fiscal 2017 to Rs 72,868.35 million in fiscal 2019 at a CAGR of 44.9% and revenues from operations have increased from Rs 33,462.03 million in fiscal 2017 to Rs 69,991.11 million in fiscal 2019 at a CAGR of 44.6%.
SBI Card net profit increased from Rs 3,728. 61 million in fiscal 2017 to Rs 8,627. 22 million in fiscal 2019 at a CAGR of 52.1%. SBI Card ROAE has remained stable at 28.5% in fiscal 2017 and 28.4% in fiscal 2019, while our ROAA increased from 4.0% in fiscal 2017 to 4.8% in fiscal 2019.
SBI Card revenue model generates both non-interest income as well as interest income on our credit card receivables, with the share of the revenue from operations that we derive from non-interest income having steadily increased over the past three fiscal years, from 43.6% in fiscal 2017 to 48.9% in fiscal 2019.
SBI Card believes this has made our capital structure more efficient and provides us with a relatively stable revenue composition that is less susceptible to market fluctuations, such as interest rate volatility.
Potential for future
India’s credit card markets still remains largely underpenetrated. According to the CRISIL Report, in calendar year 2017, the average number of credit cards outstanding per 100 persons in India was 2.2 as compared to 320.0 in the United States, 42.0 in China and 73.0 in Brazil, and credit cards spends as a percentage of GDP stood at 3.0% as compared to 17.0% in the United States, 25.0% in Hong Kong and 12.0% in Brazil.
India still has one of the highest levels of youth demographics with a median age of 26.8 as of fiscal 2015. Around 90.0% of the population is expected to be below 60 years of age by 2020, with around 63.0% of the population between the age group 15 and 59 and 37% of the population between the age group 30 and 59, the latter of which represents India’s working population.
In addition, new-to-credit customers are expected to rise as a result of the low credit penetration in smaller cities according to the CRISIL Report, with the number of new-to-credit customer originations in credit cards having increased by a CAGR of 20.0% to reach approximately 3.0 million as of fiscal 2018.
These metrics suggest there is significant potential for future growth and credit card penetration in India, and the CRISIL Report expects India’s strong macroeconomic performance, together with its large working population, rising affluence, rapid urbanization, and an increasing shift from cash transactions to card and digital payments to continue to propel the growth of India’s largely underpenetrated credit card industry.
Credit card players use various distribution channels such as Banca (selling to existing bank customers) and the open market to acquire customers. Banca channels involve leveraging the bank’s existing data base across asset as well as liability-related products and transactions for sourcing customers.
With the availability of information about these existing customers with the bank, these customers are offered pre-approved offers. The open market channel involves sourcing customers from POS at various locations (such as organized retail stores, airports, and malls), tele-sales, direct applications through web-sites and co-branding partnerships between a bank and an associate company and issued in the name of both entities. CRISIL Research estimates that the open market channel accounts for 30.0% of overall sourcing as of fiscal 2019.
Return on assets (defined as profit after tax as a percentage of average assets) is expected to remain strong in the long term, but is expected to reduce marginally in the medium term. Credit card profitability currently stands at 3.5% as of fiscal 2019.
Interest income refers to debt when customers wish to pay the minimum amount due and roll-over or revolve their payment, reduce their lump-sum payment by converting it to EMI or take loans on their credit card. The annual percentage rate (“APR”) ranges from 36.0% to 48.0%. With the increasing usage of the EMI facility in credit cards offered at a lower interest rate (of up to 24.0%), interest income as a proportion of average assets is expected to remain stable going forward, even though credit card dues is expected to grow at a healthy rate.
Fee income, on the other hand, is majorly a function of interchange fee applicable on spends, membership fees, and other costs related to lending. Other fees include any event-based fee such as over limit fees, late payment fee, and cash withdrawal fees, among others. Fees earned on spends or interchange fees is a percentage of the merchant discount rate (“MDR”) which goes to the issuing bank. This is usually approximately 75.0% to 80.0% of the overall MDR.
Going forward, according to CRISIL Research, credit card spending is expected to grow at a CAGR of 20.0% as of fiscal 2024. This will convert to interchange fees earned by the issuer thereby increasing fee income. On the other hand, customers have become cautious of the other charges incurred on them, from cash-withdrawal to over limit spending, and hence increased card usage is expected to reduce these charges going forward. Overall fee income is therefore expected to marginally increase.
Promoter and investor stake
SBI owns 74% of SBI’s equity shares as of December 31, 2019. CA Rover Holdings, an affiliate of the Carlyle Group, owns 26% of our total outstanding equity share capital as on the date of this Red Herring Prospectus.