SBI Cards IPO: Do Indians need credit cards?

Blame it on the millennials and Gen Z’s spending habits or on the unending array of aspirational goods and services that have flooded the Indian markets over the past 25 years.

Whichever way you slice it, it certainly looks like India is moving from being a nation of savers to a country of people who are spending more of their income.

For better or for worse, India’s Gross Domestic Savings Rate has been falling over the past decade. This simply means that of the total GDP, a smaller proportion is being saved and a larger amount is being spent.

There are various reasons that have given rise to this trend…

The most obvious is that India is a young democracy and young people, especially those that live in a consumption democracy, tend to have greater aspirations. But what makes the aspirations of this generation any different from those of previous ones? More specifically, what has been converting these aspirations into consumption?

Once again, it is a combination of factors…

• Access to internet connectivity has resulted in a huge pool of tech-savvy youth.
• Add to that the burgeoning of online market places and you have consumption opportunities literally pervading homes.

But aspiration opportunities and easy availability of goods and services do not automatically translate into consumption.

The big ‘x factor’ for this generation is ‘availability of credit’.

The government’s financial inclusion mission and the advent of fintech start-ups have helped overcome the traditional barriers to disbursal of credit – reach to consumers in the hinterlands and availability of credit records.

With the rise of fintech, there has been an explosion in the availability of small ticket credit, on easy terms and without insistence on credit histories or documents to ascertain creditworthiness. Fintech companies have been using big data on proxy variables and algorithms to gauge if individuals and MSMEs are credit worthy.

There have also been synergistic collaborations between white goods producers and financiers, that benefit both lenders and manufacturers. In a sense, this has also facilitated consumers who now have access to ‘buy now, pay later’ options.

All this has slowly but steadily given rise to a culture of credit. Interestingly, this culture of credit has not even scratched the surface of possibilities.

With the upcoming SBI Cards IPO, numerous articles everywhere have been detailing facts and figures about the credit cards market in India.

You will read how there are only 3 credit cards outstanding per 100 persons in India compared to 320 in the US(2017). You will also read how despite there being around 74 card issuers in the market, the top two (HDFC Bank and SBI Cards) have captured around 45% of the market (in terms of the number of outstanding cards). Most interestingly, credit card spends have been increasing at a rapid CAGR of 32% in recent times (FY15 to FY19).

But is this trend of credit-based consumption here to stay?

It certainly looks like it. Some estimates suggest that the volume of credit card spends alone is expected to reach Rs 15 trillion by FY24.

And that’s not surprising, given the fact that in addition to the culture of credit (which is rather habit-forming) having caught on, the government too has been promoting a cash-less society, digitalization, e-commerce, etc. All these factors will ensure the use of credit cards and other forms of credit continue to grow in the foreseeable future.

Perhaps that is why there is such a rush to subscribe to SBI Cards’ IPO. To know more about the IPO, do read our report on SBI Cards and Payments Services Ltd.

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We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.