Bumper opening of SBI card IPO,  Advantages and drawbacks of this IPO

SBI Card’s IPO opened for bid on Monday. On the very first day, the IPO has received 39 per cent bids. The company has raised Rs 2,769 crore from Anchor Investors, which includes 12 mutual funds.

The much awaited SBI Card and Payment Services IPO opened for bidding on Monday. SBI Card IPO got 38.87% bids on the first day. The price range for this IPO has been kept between Rs 750-755. To invest in this IPO, the customer has to bid for at least one lot, which has 19 shares and is priced at Rs 14,345. Bids were received for 3,94,54,830 shares on Monday, which is 38.87% of the issue, compared to a total of 10,02,79,411 shares. The company has raised Rs 2,769 crore from Anchor Investors, which includes 12 mutual funds.

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According to analysts and bankers tracking the listed and unlisted markets, there is currently no problem in this IPO in terms of investment, although small investors need to be aware of its strengths and shortcomings before investing in this mega IPO.

Important features of IPO
The biggest feature of this IPO is the stake of State Bank of India (SBI). Apart from this, SBI’s brand is also very strong in itself. The credit card to debit card ratio of SBI Card is 3.7%, while this figure is 45% for HDFC Bank, 28% for Axis Bank and 18% for ICICI Bank.

In addition, due to the strong distribution network, brokerage companies believe that the expectation of a better premium is justified. Analysts say that the RoE of SBI Card has never fallen below 25% in the last six to seven years and the average ROE during this period has been 30%.

SBI is the second largest credit card issuer, with debt increasing at a rate of 34% in FY 2017-19, while NPA stands at 2.3-2.4%, higher than the industry average. But this low NPA rate in this unsecured business is commendable.

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What is the risk of an IPO?
There are two sources of income in the credit card business, first is fee income and second is interest income. Interest is the income line of credit, which gives the industry an annual percentage rate (APR) of 30–42%. At the same time, fees in fee income are charged not only from the customer but also from the merchants from whom credit card purchases are made.

The Merchant Discount Rate (MDR) in India ranges between 1.6–2.5%, while the government controls the MDR of debit cards. The government has no control over the credit card MDRs right now. SBI Card has filed an appeal in the Supreme Court against a decision by the National Consumer Desputes Resolution Redressal Commission to charge more than 30% per annum to credit card holders.

Case in supreme court
Yes Securities says, “If the Supreme Court upholds the order of the National Commission then it will have an adverse effect on the income of SBI Card. The impact of the decision of the Supreme Court will not be limited to SBI card only, but a limit of annual interest will be fixed in the entire industry, which will affect the income of the industry.

Risk of setting MDR limit
In addition, the risk of setting an upper limit on MDR or interchange fees, increased competition from digital payment platforms, increased need for capital is a major risk for the company, say brokerage companies. Prabhudas Leeladhar says that SBI card’s NPA is 2.5-2.6%, while the industry average is 1%. With this, the credit cost of SBI card will remain at the upper level of 0.4%. “Increase in presence in Tier-2 and Tier-3 cities, self-employed customer base and competition are among the key risks,” the brokerage says.

What do analysts say?
ICICI Direct says that there is scope for increasing premiums from business growth and a strong return ratio.

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