If you are a customer of SBI Cards, then you must be getting continuous messages to convert the purchases made on credit card into EMI. Many customers convert large amounts purchases into EMIs. However, they have to pay interest on this but once full payment is no longer required.
The signs are not good for SBI Cards customers. The cost of SBI cards is increasing. If the cost increases further, the company may pass the burden on its customers. Failure to do so will increase pressure on the company's profit. SBI Cards is among the five biggest companies (banks) issuing credit cards in India. SBI Cards MD and CEO Abhijeet Chakraborty told CNBC-TV18 that credit cost is expected to remain around 7 percent going forward. At the end of the last financial year, the company's net interest margin stood at 11.3 percent. It is expected to remain at this level. If it increases then we can pass the burden on the customers.
decline in NIM
In case of SBI Cards, the Net Interest Margin is the difference between the Average Lending Rate and the Average Cost of Funds. The company's NIM declined by 90 basis points to 11.3 percent in FY24. The question is how do credit card companies make profits?
Earning comes from many sources
Credit cards companies or banks earn from many sources. They earn from fees collected from cardholders. Credit card companies also charge transaction charges from vendors who accept credit card payments. Credit card companies allow customers to convert large amounts of shopping into EMIs. She takes interest on this. They earn money from this. In the end, credit card customers pay a part of the bill instead of paying the entire bill. Credit card companies charge interest on this. They earn money from this.
Company benefits by paying some part instead of bill
Chakraborty believes that it is beneficial for customers to convert their purchases into EMIs and pay a part of the bill instead of paying the entire bill."We encourage clients to do both. That's why our total interest-earnings assets are growing. It has grown 4 per cent year-on year. It remains stable at 62 percent," he said. He said that interest income is very important for us. Growth in both the loan book and interest-earning assets is important.
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