SBI Cards and Payment Services Share price could decline to Rs 700, as per a report published by Emkay Global Financial Services. SBI Cards shares closed one percent lower on Friday despite broader market witnessing a strong rally and NSE Nifty closing at all-time highs. SBI Cards stock opened at Rs 802 and that was high for the day. The stock declined to Rs 780 during intraday trade and ended the session at Rs 788.

Emkay Global Research has issued a SELL recommendation for SBI Cards, setting a target price of ₹700, down from its current trading price of ₹788. The report highlights the company’s deteriorating asset quality, regulatory headwinds, and sluggish growth in card acquisition as key factors driving this recommendation. Although there is potential for margin improvement amid expected policy rate cuts in 2025, rising NPAs and increased regulatory scrutiny on unsecured loans present significant challenges. Emkay Global’s analysis underscores the need for SBI Cards to address its capital position and enhance portfolio management to mitigate ongoing risks.

Margin Potential Amid Expected Rate Cuts in 2025

Emkay Global suggests that SBI Cards could benefit from potential policy rate cuts anticipated in 2025 due to its fixed-rate asset portfolio and a significant portion of borrowings maturing in less than one year. After a prolonged contraction cycle, margins have stabilized, presenting an opportunity for improvement. Emkay expects a 20 basis points margin increase in FY26 and a further 50 basis points in FY27, providing some support to the company’s operating income amid declining credit growth and reduced fee income. However, these margin gains are unlikely to offset broader issues impacting the business.

Rising Asset Quality Concerns and Slower Growth

SBI Cards has seen a marked deterioration in asset quality, with Gross Non-Performing Assets (GNPA) and Stage 2 assets rising to 3.1% and 6.2% of loans, respectively, in Q1 FY25, compared to 2.4% and 5.3% a year ago. Emkay’s industry checks indicate that stress levels in the credit card segment remain high, compounded by increasing regulatory scrutiny on unsecured lending. This pressure has already led to a slower pace of new card acquisitions—under 1 million in Q1 FY25—resulting in a continued decline in the company’s Cards in Force (CIF) and spend market share.

Capital Challenges and Need for Fundraising

SBI Cards is also facing capital adequacy challenges, with Tier I capital declining to 16.8% following an increase in Risk-Weighted Assets (RWA) mandated by the Reserve Bank of India (RBI). Emkay Global stresses that the company needs to raise capital urgently to strengthen its balance sheet and support future growth. The pressure to secure additional capital comes amid slower business momentum and higher charge-offs due to rising non-performing assets, which are expected to weigh on the company’s return on assets (RoAs), projected at a sub-optimal 3.6-4%.

Market Share Erosion and Slower Credit Growth

SBI Cards’ overall growth in CIF has moderated to 11% year-on-year, reaching 19.3 million cards. However, this slowdown in new card acquisitions, driven by increasing financial distress among borrowers, has caused a persistent decline in market share, dropping to 18.5% in Q1 FY25 from 19.6% in the previous year. The fall in spending market share has been more pronounced, declining to 15.8% in July 2024, primarily due to reduced corporate spending. Despite aggressive issuance of Rupay credit cards, non-Rupay acquisitions remain sluggish as the company prioritizes managing portfolio quality over rapid growth.

Outlook and Emkay’s Conclusion

Emkay Global has reiterated its REDUCE stance on SBI Cards, emphasizing the stock’s weak fundamentals and the pressing need for capital augmentation. With projected slow growth and rising NPAs, the report highlights the expectation of subpar RoAs and continued pressure on the company’s market position. The target price of ₹700 reflects a valuation of 3.7x of September 2026 estimated adjusted book value (ABV), underscoring the cautious outlook on the stock amid challenging market conditions.