SBI Cards top stock pick after RBI allows linking of credit cards with UPI
Premium- The RBI on Wednesday allowed credit cards to be linked with the unified payments interface (UPI)
The Reserve Bank of India (RBI) on Wednesday allowed credit cards to be linked with the unified payments interface (UPI), which will enable more people to make payments using the popular platform.
Till now, only debit cards connected to savings bank accounts and current accounts were allowed to link up to the UPI platform. Experts believe that linking credit cards to UPI is likely to reduce transaction cost and increase acceptability. The roll-out will start with RuPay cards and then for the rest of the cards in the industry.
Recommending SBI Cards shares as its top stock pick, brokerage Axis Securities said it believes RBI's proposal to link credit card with UPI is a positive for the credit card issuers as it would boost spends given the popularity of UPI as a mode of digital payment.
“Similarly, the linking of UPI with credit cards would encourage users to avail the benefits of the credit period extended by credit cards, thereby providing an opportunity to widen the credit card network and increase its acceptance," the note stated.
As of April 2022, there are a total of around 6.1 million Point of Sales (PoS) machines accepting credit cards, while the UPI QR codes are significantly higher at around 181 million.
However, from the pricing perspective, in terms of applicability of MDR charges to UPI – the Credit Card transaction will remain a key monitorable and is yet to be ascertained. Currently, UPI and RuPay debit cards do not attract any MDR charges, it added.
Another brokerage Yes Securities is also bullish on the stock and has maintained its Buy rating on SBI Cards share price with a 12-month target of ₹1,260 as it said the company is confident about maintaining the card sourcing run-rate demonstrated in past two quarters while would not chase market share at the cost of risk or profitability.
Being the only listed pure-play credit card issuer with significantly higher profitability than Banks and NBFCs (in good times as well as bad times), SBI Cards would continue to command a premium valuation, as per Yes Securities.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.