SBI Cards & Payment Services Ltd Management Discussions

The Indian economy and the financial and resilient in a world of unprecedented headwinds and swift cross currents. The country is clocking strong growth across a broad range of sectors, driven by consumption demand and capital expenditure. Nevertheless, due to the drag from net external demand and concerns about contagion of financial turbulence from the global economy, growth is projected to moderate in the year ahead.

MACRO-ECONOMIC ENVIRONMENT

The RBI governor recounted in the June 2023 monetary and credit policy that unlike the previous three tumultuous years, the uncertainty on the horizon appears lesser and the path ahead somewhat clearer; but the geopolitical conflict continues unabated and policy normalisation globally is far from complete.

Headline inflation but is still high and above the targets. Labour markets are tight, and demand is rotating back from goods to services. Hence, central banks across the world remain on high alert and watchful of the evolving conditions, even though many of them have tempered their rate hikes or taken a pause. Financial stability concerns persist in advanced economies, although they appear to have been contained due to resolute actions.

Retrenchment in trade, technology and capital flows caused by geopolitical fault lines and economic fragmentation further complicate the situation. In these challenging times, domestic macroeconomic fundamentals are strengthening – economic activity is exhibiting resilience; inflation has moderated; the current account deficit has narrowed; and foreign exchange reserves are comfortable. Fiscal consolidation is also ongoing. The Indian banking system remains stable and resilient, credit growth is robust and domestic financial according to the Monetary Policy Committee (MPC). However, taking into account the headwinds from weak external demand, volatility in global financial markets, protracted geopolitical tensions and intensity of El Nino impact, the RBI projects the real GDP growth for 2023-24 at 6.5%.

Source: RBI MPC – 8 June 2023

OUTLOOK FOR FISCAL 2023

Looking ahead, the RBI MPC expects that the higher rabi production will improve the prospects for the agriculture sector and rural demand. At the same time, the steady growth in contact-intensive services is likely to drive urban demand. If these impulses play out, the consumption story will continue to power Indias growth.

Manufacturing and investment activity are also expected to provide a strong thrust to growth with the governments focus on capital expenditure and capacity utilisation reaching above across countries is on a downward trajectory its long-period average. Moderating commodity prices are also providing tailwinds.

The only concern is the global headwinds which could impact the Indian economy through a drag from net external demand.

The drawn-out geopolitical tensions and global financial market volatility could pose downside risks to the otherwise sanguine outlook for Indias economy. The central bank cautioned that rising uncertainty in international financial markets and imported inflation pressures will need to be monitored closely.

RBIs GDP growth projection for India

6.5%

in 2023-24 markets have evolved in an orderly manner,

Total card base of SBI Card

1.68 crore

as of March 2023

SBI Cards share of cards in force

19.7%

in India

Due to all these factors, the overall outlook remains dynamic and fast evolving, according to the MPC. It stated that even as monetary policy moved decisively to withdrawal of accommodation, financial conditions would evolve in line with the productive requirements of the economy.

Balancing all these positive and negative risks to growth, the RBI predicted a real GDP growth of 6.5% for 2023-24.

INDUSTRY DEVELOPMENTS

The payments industry continues to experience rapid expansion. The industry has witnessed increased and renewed activity not only from established financial institutions, but also from a multitude of fintech players which have been launching and introducing innovative products, enhanced customer engagement and service delivery, backed by aggressive business models. Credit card as a product has also gained acceptance and continues to be popular amongst consumers.

During the year, credit card industry has seen changes owing to new guidelines under RBIs Master Direction on "Debit and Credit Card Issuance and Conduct Directions, 2022" released on April 21, 2022. Guidelines issued by RBI are progressive and beneficial, and protection. These guidelines impacted credit card industry in short term but the long-term initiatives taken by industry players would minimise this impact.

• As per the mandate in RBI Circular, credit cards that have remained unused for a period exceeding one year are to be closed if the customers do not respond to closure notification within 30 days. This has been implemented from July 2022. Another guideline applicable on newly sourced credit cards, which has been implemented from October 1, 2022, which directs that issuers have to close the card if a cardholder has not activated the credit card within a month. Implementation of these guidelines resulted in the closure of more than 3 million credit cards for the industry as per RBI credit card data.

• RBI Mandate also mentions that credit limit as sanctioned by issuer should not be breached without seeking explicit consent from the cardholder. This has been implemented live from October 2022. This change is similar to online transactions switching activation which was implemented earlier. As we have seen in the case of online transactions, we expect that the change in overlimit may stabilise over a period of time. There was a change in late fee levy norms with introduction of three days grace period and non-capitalisation of fees and charges with respect to levy of finance charges as mandated by RBI.

During the last financial year, there was a key development which not only impacted the business model of some of theasthesearefocussedon cardholdersconvenience newer players in the Fintech space but also forced established large players to review their business models. RBI with Master Directions on Prepaid Payment Instruments asked non-bank PPI issuers to stop practice of loading wallets and cards from credit lines or pre-set borrowing limits. The BNPL (Buy Now, Pay Later) industry has been impacted by the RBIs revisions to the Master Directions on Prepaid Payment Instruments ( July 2021), which prohibits non-banks from loading prepaid instruments (digital wallets or stored-value cards) with credit limits. It resulted in BNPL players collaborating with Banks/NBFCs to launch digital lending products. With the industry adapting to these new directives, it is expected that innovation, and consumer-centric practices would increasingly play a central role in industrys growth.

Despite all these recent developments, the growth story of Indian credit cards industry is intact as the market remains largely underpenetrated. As per RBI industry reports, the number of credit cards in circulation in India stands at 8.5 crore as on March 2023, growing by 16% YoY. Spends on credit cards for FY2023 stand at 14,33,029 crore, a growth of 47% from the previous year. There are 78 lakh PoS terminals as on March 2023, growing by 28% YoY. The number of BQR terminals stands at 61 lakh, as of March 2023, growing by 24% YoY.

Significant touchpoints which in turn creates a strong positive momentum for the industry.

The Company is the second-largest credit card issuer in India in terms of cards in force and spends. The Company has a total card base of 1.68 crore as of March 2023, which is 22% higher than the previous year. Cards in force market share is at 19.7%, as of March 2023. The Companys spends stand at 2,62,498 crore, registering 41% growth from FY2022. The Companys market share in spends stands at 18.2% for FY2023.

OPPORTUNITIES

Indias credit card industry has seen a healthy growth over the years, still the market remains largely underpenetrated. The average card ownership is 5 for every 100, compared to 177 in Brazil, 57 in China, 69 in Australia, 88 in UK, 228 in South Korea and 325 in the USA (Source: BIS Data as of end of 2021 updated in March 2023). Hence, there is a tremendous scope for credit card adoption and usage in India and an enormous growth potential for credit card players. Outlined below are some of the enablers which will help the industry to grow at a robust pace:

1. Payment Infrastructure

• Acceptance infrastructure inclusive of PoS and BQR terminals has seen growth of 26% YoY in FY2023 over FY2022, and initiatives like the Acceptance Development Fund set up in 2020 are further expected to aid this growth (Source: RBI Payment system indicators report March 2023).

The Company is the second-largest credit card issuer in India in terms of cards in force and spends. The Company has a total card base of 1.68 crore as of March 2023, which is 22% higher than the previous year.

• QR code-based acceptance is gaining ground and is growing at par with growth in POS terminals.

• RBI has allowed RuPay credit cards to be used at UPI merchants. This presents an opportunity to tap into the P2M small ticket size transactions being transacted through credit cards and in further growing the credit card spends.

• Payments Infrastructure Development Fund (PIDF) has been operationalised by RBI to increase penetration of acquiring devices across the country. growthofPoSandBQR terminalsenables usage at

• Credit on UPI is likely to replace customers usage of account balance and is expected to become a stepping stone for upgrading to a credit card.

2. Consumer Behaviour

• The digitisation in payments has increased significantly.

Retail digital payments up to 89% in FY2023 vs. 45% in FY2015 (Source: RBI and NPCI payments system data, March 2023).

• Digital customer acquisition has been increasing as end-to-end digital experience is gaining customer acceptance with increasing penetration of smartphones.

• Credit acceptance is also growing; Retail credit in form of personal loans have grown by 15% CAGR for the 3-year period, as on March 2023 (Source: RBI Bank credit data).

• The consumer spending on e-commerce platforms has also been increasing. The e-commerce market is estimated to reach around 15,600 billion by 2025 from 6,190 billion in 2022. By 2030 it is expected to reach 28,960 billion (Source: IBEF Report Feb 2023).

• With increasing adoption and usage, new avenues for credit cards payments are emerging such as categories like education, utility payments, health & fitness, tax payments (direct & indirect taxes including GST), etc.

Threats

In the credit category, new opportunities and challenges have emerged. Digital lending is gaining renewed attention in a significant age players, particularly online e-commerce companies offering pre-approved short-term credit to their existing customers and BNPL companies are targeting new market segments. BNPL players are collaborating with banks and NBFCs to provide comprehensive banking services and are redefining financial activities. Post-RBI ban on prepaid card lending, BNPL companies are partnering with banks and non-bank financial institutions to launch digital lending products. RBI has also allowed banks to transfer pre-approved credit lines through the UPI network. This measure will allow UPI services to resemble credit cards and provide low-value credit to nearly 30 crore users of UPIs various payment platforms. At the same time, will enable banks to structure loans like credit cards. Private lenders, who perceived little value in promoting UPI, could become more active as they have the opportunity to expand their loan portfolio. Credit on UPI and BNPL, which is readily accessible to customers, may influence their credit card activity.

The Indian Government continues to encourage and promote the adoption of digital payments. UPI, an alternative payment mechanism, is the biggest beneficiary on account of ease of use and static password process. Availability of multiple UPI platforms has further increased the adoption of this payment option as they continue to develop and build new use cases. UPI has, hence, grown at a rapid pace vis-?-vis other payment mechanisms. Around 22% of UPI spends are merchant payments, while the remaining are P2P payments. Enabling transactions on RuPay credit card for merchants on UPI platform opens up additional categories and can give a significant to credit card spends through small ticket-size payments.

The impact of these initiatives on credit cards is still to be ascertained, and the Company will need to keep a close watch on the situation in order to analyse and take actions as and when required.

Risks and Concerns

Throughout FY2023, the external environment has been volatile. The concerns of a global slow down, rising interest rate scenario, continuing geo-political tensions, regulatory changes for credit card companies, and digital lending guidelines, have continued to impact the operations of the Company. The Company has been addressing the impact of these in an agile and proactive manner. The Company continues to be watchful of the dynamic environment and is determined to ensure profitable

With an increase in the number of cybersecurity incidents of data thefts and financial frauds in the banking and financial sector, the Company has given top-most priority to strengthening its information and cybersecurity framework across people, processes, and technology within the Company. All customer and organisational data, along with information assets, are protected with multi-layered security. The Company is equippedway. Industry has witnessed a proliferation of new-to prevent, detect, withstand, and respond to cybersecurity attacks or insider threats with security controls implemented across layers (Security awareness, IT network, system, and applications). The Company remains in complete compliance with RBIs cybersecurity mandate for NBFCs.

BUSINESS OVERVIEW Card Acquisition

Company sourced 52.0 lakh new accounts in FY2023 compared to 35.7 lakh in FY2022. The cards in force have increased to 1.68 crore as on March 2023 compared to 1.38 crore cards as of March 2022 with 22% YoY growth. The Company has started sourcing the customers digitally and the share is increasing. This method offers quick and easy delivery of cards to customers.

SBI Channel: The Company sourced 23.5 lakh new accounts from SBI channel with a YoY growth of 41%. The composition of cards in force from SBI channel stands at 42% in FY2023.

New Product Launches

• CASHBACK SBI Card: The Company has introduced st cashback-focussed credit card that enables fir industrys cardholders to earn up to 5% cashback on all online spends. Targeted at customers across all categories, from mass to premium, the card offers a simple, seamless, and completely digital joining experience, rewarding the customers through cashbacks for their spends for offline and online spends. boost

• Aditya Birla SBI Card: The Company has partnered with Aditya Birla Finance Ltd. (ABFL), to launch ‘Aditya Birla SBI Card. The reward-centric credit card has been designed to provide customers with benefits on premium and mass brands under the Aditya Birla Group.

• PSB SBI Card: The Company has also partnered with

Punjab & Sind Bank, one of the leading public sector banks in India to launch three card variants - PSB SBI Card ELITE, PSB SBI Card PRIME, and PSB SimplySAVE SBI Card. These variants will cater to the spending needs of customers of

Punjab and Sind Bank, across mass, mass premium and premium segments.

Spends and Engagement growth.

• The Company has maintained its robust growth momentum in spends. Retail spends for FY2023 were at 2,06,465 crore, demonstrating a YoY growth of 41%.

• The Company has maintained its robust growth momentum in Corporate Card Business; Corporate spends for FY2023 have been at 56,034 crore demonstrating a YoY growth of 40% over FY2022.

• The Company has also introduced EMI offers with merchants in various consumer categories for both online and in-store spends.

• The Company has continued to leverage on growing significance of online purchases, as 57% of retail spends during the year have been made online.

Brand

The Company sustained the highest top-of-mind awareness and 100% total awareness in the category, as per the annual Brand Track Survey commissioned by the Company and conducted by Kantar IMRB in Q1FY2023. This year, advertising focus has been on driving customer acquisition and higher spends on cards. The launch of power-packed CASHBACK SBI Card by the Company was promoted widely through TV and digital media. Our digital application process SBI Card SPRINT has been launched through a print ad campaign in leading national and regional dailies. We continued our efforts in augmenting awareness of Aurum, our super premium offering, through selective and targeted outdoor advertising. In FY2023, the Company has also rolled out special offers on Akshaya Tritiya through print media, covering top eight metros which have been further amplified by ads in regional publications across 14 states. The brand salience has been further augmented through the ongoing retail kiosks programme,, with presence in over 100 cities. This has helped enhance the brand visibility at the point of sale in addition to supporting customer acquisition efforts.

The Company has been recognised as ‘Readers Digest Trusted Brand 2022 in the credit card category for the 14th time. The Company has also been honoured with the ‘ET Best Brand 2022 award in the credit cards category for the year 2022.

The Company sustained the highest top-of-mind awareness and 100% total awareness in the category, as per the annual Brand Track Survey commissioned by the Company and conducted by Kantar IMRB in Q1FY2023.

DIGITAL PLATFORMS Mobile App:

• The Companys mobile application can be downloaded both on Play Store and App Store. It continues to be a preferred self-service digital channel for our customers. The app recorded 1.29 crore active app installations with app ratings at 4.5/5.0 on Play Store and 4.6/5.0 on App Store in FY2023. The app has over 100+ features for self-servicing, cross-sell and insurance on the platform and has recorded over 73.9 crore+ logins in FY2023.

• Several key features and upgrades have been added to the app in FY2023 in order to enhance customer experience, increase engagement, strengthen security, and simplify servicing. Some of the key implementations include – revamping the customer journey for cross-sell products, introduction of overlimit consent switch facility, enabling voluntary card closure journey, Digilocker integration for digital KYC in contact and residence address change for the convenience of cardholders and SIM binding Process for enhanced security.

Website:

• The Companys website continues to be highly visited with over 10 crore visitors in FY2023. The website channels have multiple features for self-servicing, cross-sell, and insurance on the platform.

• The Companys website continues to integrate new features and enhance customer experience. Key implementations during the year include:

• Digilocker integration for digital KYC in contact and residence address change.

• Introduction of overlimit consent switch facility.

• Enabling voluntary card closure journey.

• Enhancing website account security through changes to the login mechanisms and password policies.

• Enhanced features for tracking of credit card application.

WhatsApp:

• The Companys WhatsApp Connect service was launched in August 2020 with an objective of providing another self-service channel to our cardholders. During FY2023, ~ 16 lakh unique customers have been active on the platform and ~ 35.1 lakh opt-ins have been received. To increase usage of the platform and to enhance customer engagement, several features have been added during the year, viz. – Flexipay booking process on WhatsApp, and website redirections for eligible customers for products like Encash, Balance Transfer and Card Upgrade.

• Other features available on the platform include - checking account summary, outstanding balance, payment support, rewards enquiry, block and reissue credit card, download statement etc.

Ask ILA:

• Our chatbot "Ask ILA" seamlessly integrates with our mobile App and website and is an important self-service channel with over 2.2 crore total logins during FY2023. The platform has addressed over 7.7 crore customer queries during the year. Several new features were added to Ask ILA in the last financial year to enhance customer experience, engagement, security and increase transactions. Some of the key features include – enabling OTP on international number, changes to password policy for enhanced security and change in logic for Spend Analyser, among others.

Digital and Social Media Initiatives

• The Companys social media presence across platforms (Facebook, Twitter, Instagram, YouTube, and LinkedIn) reached 21 lakh+ followers/subscribers during FY2023. The Company has run various campaigns on these platforms to engage with the users through contextual posts, videos, carousels etc. with key focus on offers, digital self-service channels, and topical/moment marketing etc. CSR initiatives and fraud awareness related content have also been shared on these social media channels.

• The Company has also executed digital media campaigns spanning new product launches, portfolio offers and cross-sell campaign promotions in FY2023 to reach an audience of 122 million. These digital campaigns have been amplified through a media mix of OTT platforms, e-commerce portals and publisher networks.

RISK MANAGEMENT

For the Company, risk constitutes an inherent part of its business and, hence, the Company considers risk management integral to all aspects of its operations. The Company has a robust risk management framework, based on regulatory guidelines and industry best practices, comprising policies, procedures, activities, and tools that help it identify, assess, control, monitor, mitigate, report on, and govern risks. The

Companys risk management framework makes use of efficient tools and analytics in order to create insights, which enable its senior management to manage risks within the internal and external organisational context by making sound and informed risk-based decisions.

The risk management process is subjected to periodic review to deliver assurance that it remains appropriate and effective, aligned with the emerging risks. The Risk Management Framework supports a sound system of internal control, contributes to effective corporate governance, and assists in fulfilling risk reporting requirements.

The risk management process involves a series of actions designed to reduce or eliminate potential losses, which emanate from known or unknown risks. Accordingly, a risk management framework has been implemented to enable the identification, assessment, aggregation, and reporting of risks prevailing in the processes.

The Board, along with its various committees, is responsible for overall corporate governance. The Board of Directors is responsible for approving and reviewing policies and strategic issues, which are crucial for the organisations overall growth and development and achievement of its strategic and business goals. Board-designated committees, namely, Risk Management Committee of Board (RMCB), Audit Committee of Board (ACB), Stakeholder Relationship and Customer Experience Committee of the Board, IT Strategy Committee and various internal committees, including Enterprise Risk Management Committee (ERMC), Operational Risk Management Committee (ORMC), Vendor Risk Management Committee (VRMC) Compliance Review Committee (CRC), Information Security Committee (ISC) and New Product Introduction Committee (NPIC) are in place for monitoring business performance and monitoring and management of various risks.

The major risks faced by the Company are credit risk, operational risk, liquidity risk, regulatory risk, reputation risk, strategic risk and vendor risk. The Company has formulated various policies, including Risk Management Policy, Compliance Policy, Credit Risk Policy, Collection Policy, Fraud Risk Management Policy, Vendor Risk Management Policy, Information and Cyber Security Policy etc., to delineate comprehensive architecture for managing these risks prudently. The Company has adopted qualitative and quantitative parameters to assess the materiality of risks to be included in our risk universe. This risk universe is reviewed and updated annually. The Board-approved Risk Management Policy provides guidance to the management on the desired level of risk for various types of risks and helps steer critical portfolio and strategic decisions. The Company has a Risk Appetite Statement that consists of all the Key Risk Indicators and their performance is reported to ERMC monthly.

• Credit Risk: Credit risk is the risk of a financial loss if the customer fails to meet their contractual obligations. Being a credit card Company with retail and corporate portfolio being the earning assets, credit risk arises from all transactions that give rise to actual, contingent, or potential claims against any borrower. The goal of credit risk management is to maintain asset quality and concentrations at individual exposures as well as at the portfolio level. As card dues are mostly retail in nature and are payable monthly, the assessment and monitoring of the credit portfolio is done through a review of the cardholders repayment performance and outstanding in various buckets. Besides, the Company has detailed portfolio monitoring for the corporate card portfolio as well. The collection of dues is also geared towards bucket-wise segmentation, as the behavioural pattern under different buckets differs.

The Company uses sophisticated Machine Learning (ML) based analytics and models to continuously perform a risk rating of the portfolio for determining the acceptability of risk, drawdown ability, credit limits, eligibility and sanctioning of authorisations, eligibility for instalment-based balance conversions and review frequency. Large and risky exposures for our corporate card portfolio are independently vetted by the risk management department and approved by the suitable credit committee. Risk models are governed by a Model Risk Governance process covering the life cycle of all risk models from inception, methodology, discrimination power, accuracy, and stability, to model calibration and retirement.

• Operational Risk: The Company has set up a comprehensive Risk and Controls Self-Assessment (RCSA) process for documenting, assessing, and periodic monitoring of various risks and controls. Risks are assessed for their acceptability or unacceptability by measuring their frequency and impact. An incident reporting mechanism for reporting operational risk incidents is in place. All outsourcing arrangements are examined and approved only after a due diligence process, including financial, reputation, information security, compliance, and business continuity risk assessment. The Business Continuity (BCP) framework is in place to ensure continuity of service to its large customer base. The effectiveness of the approved Business Continuity Plan (BCP) framework is tested for all identified critical internal activities to ensure continuity of services and readiness to meet various contingency scenarios. The learning from the BCP exercises is used as input to further refine the framework. The Company has strengthened its data loss prevention systems and deployed various controls to ensure the information/data of customers, stakeholders, and employees are secure. Information Security Committee regularly reviews the performance of key information and cyber security metrics and provides directions to mitigate risks.

The effectiveness of the approved Business Continuity Plan (BCP) framework is tested for all identified critical internal activities to ensure continuity of services and readiness to meet various contingency scenarios.

• Liquidity Risk: Liquidity risk arises when a Company is unable to meet its payment obligation when they fall due. This may be caused by the Companys inability to liquidate assets or obtain funding to meet its liquidity needs. The Asset Liability Management (ALM) Policy of the Company stipulates a broad framework for liquidity risk management to ensure that the Company is in a position to meet its liquidity obligations as well as withstand a period of liquidity stress. Pursuant to RBI Circular on Liquidity Risk Management Framework for NBFC, we have introduced various key indicators in liquidity risk appetite to provide early warning signals.

The Company has also adopted a stress testing methodology to identify, measure, monitor and control risk concentrations. The Company has computed the impact of macroeconomic variables on the profitability of the Company, and accordingly, the requirement of additional capital is computed in three scenarios viz., Mild, Moderate, and Severe.

• Regulatory Risk: In order to comply with regulatory guidelines and laws/rules, the Company tracks the completion of all regulatory tasks through an automated tool. All key issues are highlighted to Enterprise Risk Management Committee, Operational Risk Management Committee and Compliance Review Committee. In addition, the Company performs independent annual assurance testing to comply with regulatory guidelines.

• Reputation Risk: As a part of the service industry, managing reputation risk is of paramount importance to the Company. Therefore, the Company monitors customer complaints resolution, social media complaints, and negative media incidents and obtain real-time feedback to measure the voice of customers.

• Strategic Risk: Strategic Risk arises due to a wrong business model or lack of medium- or long-term planning. It may also arise due to a lack of awareness about competition or a changing business environment. The assessment is generally carried out by benchmarking key business metrices against the competition. The Board is actively engaged in providing strategic direction to the Company. The Company is constantly trying to introduce innovative products in order to maintain and increase its competitive advantage in the industry.

• Vendor Risk: The Company engages with multiple third parties or vendors for various services across geographies. Failure to manage risks arising out of vendor risk may result in significant w of customer grievances, 12% lower inflo and/or legal and regulatory issues. The Company has accordingly adopted a Vendor Risk Management Policy detailing guidelines on vendor risk assessments.

Operations and Customer Servicing

The Companys customer services strategy aims to enhance customer experience and optimise service costs. To achieve this goal, the Company has launched various digital initiatives to encourage customers to use online channels for their interactions. The quality of customer experience is assessed by performance metrics that are also subject to regulatory scrutiny.

Some highlights from FY2023 include:

• Account retention: The Company has focussed on increasing customer retention through various initiatives and interventions through higher customer satisfaction and lower customer complaints.

• Improved responsiveness: Investments in telephony technology, optimisation tools, chatbots, and processes have led to improved response times. The Company manages an average of 1.6 crore customer touchpoints per month, with 83% managed digitally and 17% manually.

• External communication: The Company has a robust communication protocol with its customers for any transaction declines experienced by them due to various reasons, including but not limited to, card expiry, card blockage, and exceeding credit limits. At any instant of a transaction decline, our standard procedure involves sending an SMS communication to the customer along with an email to his registered email ID. Additionally, an automated voice blaster attempts to call the customer to address the issue. It is important to note that this automated call system is used by the majority of our customers.

• The Company has also received awards and certifications, including COPC certification for workforce and quality monitoring processes and the "Stevie awards" (Gold and Silver).

• Several digital interventions have been implemented, such as the launch of Spend Analyser 2.0, the digital account closure journey across channels in accordance with

RBI guidelines, self-service options through IVR on the helpline, and enhancements in IVR structure to prompt the adoption of digital channels like WhatsApp and Missed Call Service. Other improvements include digitalising the credit balance refund process, introducing the option to download statements on WhatsApp, and successful integration of Connect 2.0 with the Sales 24 App.

• During the year, the Company received 6.49 lakh grossfinancial loss, reputational damage, than previous year. The structured approach of analysing the root cause of demand drivers and concerted efforts in driving actionable resulted in lower inflow volumes across complaint categories, more specifically in Mis-sell related and volumes arising from a failure in offer fulfilment. In the future, the Company plans to continue its journey of digitisation and leverage AI and robotics to provide better value to customers. The Company aims to adapt to changing customer expectations and invest in technology and processes to deliver a seamless, personalised, and convenient experience across all channels. Some critical future investments include digital transformation with AI and Machine Learning capabilities, building vernacular capabilities in customer communication for tier 3 and tier 4 markets, leveraging customer data and analytics through speech-to-text technology, implementing social media tools and language enhancements, and process re-engineering and system enhancements.

TECHNOLOGY

New Payment Technologies

The Company has been amongst the industry front-runners in technology adoption. The Company has been one of the earliest card issuers in the industry to launch contactless cards and has moved all-new card issuance to contactless cards. Our proprietary payment solutions, Scan to Pay and Company Pay, not only provide ease of transaction and greater payment experience but also enhanced security. Additionally, the Company has also integrated with Jio Pay and Paytm Pay for Visa and MasterCard cardholders. With these launches, the Companys digital payment suite now includes – Samsung Pay, SBI Card Pay, Google Pay, Jio Pay, Paytm Pay and Scan and Pay (Bharat QR) for both VISA and MasterCard. With the advent of upcoming wallet technologies, the Company is geared towards integrating it to provide its cardholders easy access to new and updated means of payment.

The Company has also enabled its customers to tokenise their cards on the merchant website/app for the better security of our customers, as directed by RBI.

The Company has been committed to digitising the journey, across the life cycle of a card, from new accounts to collections powered by artificial intelligence and data analysis, built on a strong infrastructure to enable growth in the payment ecosystem while protecting its customers.

• Digital Sourcing Capabilities:

The Company is enhancing digital sourcing with new features and capabilities. It has added new valuable digital capabilities like the digital KYC platform - KROC for KYC renewals and integrated digital KYC modules (eKYC and Digilocker), introduced a new credit scorecard decision engine, and digitised verification process along with email validation process revamp.

• Digital Carding:

The Company has added new programs for instant carding. One of the key flagship SPRINT program a straight-through processing journey for the new to Company segment. The Company has onboarded 70K+ cards since the launch of the SBI Card

SPRINT program. The journey has been powered with digital capabilities like real-time optimisation of campaign strategy for inorganic traffic and journey restart for abandoned applications. This digital sourcing through SBI Card SPRINT has reduced the cost of acquisition for the Company.

• Data Analytics:

The Company has invested in Data Lake, which brings data from multiple core platforms into one place, enabling real-time and near-real-time analytics and next best action for applicable use cases and business functions. This year the data lake platform has built many key initiatives to attract customer through campaigns, increase customer spending, and developed various AI/ML-based model to predict customer behaviours. Some of these initiatives to enable real-time calling to customers on first online transaction in vernacular languages, leveraging AI/ML models in the collections recovery process to predict customers propensity to pay and align the collection workforce accordingly.

• Digital Servicing:

In its endeavour to empower its customers, the Company has introduced many new self-service capabilities on its digital channels such as enhancing WhatsApp servicing expansion with new features such as offering all cross-sell products, credit limit increase and card upgrade. The Company introduced retention tools, enabled Flexipay booking on digital and helpline journeys, improved auto debit salary sweep process, mobile number login change to provide more security, launched Hindi-translated Companys website with 15 most visited pages, revamped add-on card apply journey on mobile app, leveraged RPA automation for curing unsuccessful card delivery attempts and introduced Digi Locker for updating contact change details through digital channels, etc.

• Digital Collections:

The Company continues to digitise our collections processes with a focus on making it simpler for customers to pay, increasing the productivity of agents and increasing the efficiency of the collections through key initiatives like enhanced front-end and allocation modules to ensure unified collections for multi-account holders, enabled communication for payment reminders through digital channels – SMS, e-mail, IVR, and WhatsApp from CX24 on recovery portfolio. initiatives is SBI Card

• Strong, Scalable, Reliable and Secure Infrastructure:

All the Companys business enablers are being built up on a strong foundation with 24*7 availability across all IT systems with a strong disaster recovery set-up for all mission-critical applications. The Company has created its own intellectual property, consisting of applications to run the business processes and serve customers efficiently.

This year, the Company has successfully migrated its complete ecosystem of 75+ Applications to NEW DC Site STT Datacentre, which is best-in-class and state-of-the-art site in Bengaluru. The Company has also developed active-active setup for contact centre application in two datacentres: Bengaluru and Hyderabad. Inbound customer calls can now be distributed to both datacentres.

COMPLIANCE

To ensure the highest standards of compliance, the Company has a strong, independent, and robust compliance program in accordance with the regulatory and ethical obligations. To identify, assess and manage various compliance risks, a comprehensive compliance framework has been set up with Board-approved compliance policy that includes governance structure, detailed guidelines on Code of Conduct etc. The Company also has a Board-approved Fair Practice Code, AML/ KYC Policy in place.

All areas of compliance are managed under a shared framework of prevention, detection, and response. This framework has been developedwithspecificfocus on maintaining adherence to all applicable regulatory norms with a strong operating rhythm through regular reviews with the senior management team, who sign a monthly certification.

A functional compliance framework has also been set up, wherein each function is educated on its regulatory obligations; metrics of their processes are prepared to ensure compliance and an ongoing tracking/review is conducted in the Compliance Committee. The Compliance Program also has a proactive assurance process that tests the controls governing key compliance areas.

The Company reviews all new products, processes, and ensures that its internal policies address the regulatory requirements comprehensively. The Company also aims to continuously strengthen the culture of integrity and ethics through employee awareness and education on key compliance themes and regulatory obligations through various modes like e-learning sessions, leadership connect, focus group sessions, location connect, online knowledge checks etc. A comprehensive compliance training programme ensures continuous employee education and awareness for all new and existing employees.

The Company also firmly believe that as business transactions become more digitised, trust and transparency remain vital elements of the business. This approach strengthens the Companys current relationship with the customers and also shapes its endeavours for future business growth.

INTERNAL AUDIT

The Internal Audit team of the Company provides high-quality counsel to the management on the effectiveness of risk management and regulatory compliance of the organisation, besides contributing to the effectiveness of the internal controls in achieving the corporate objectives. The internal audit team is responsible for planning and getting the risk-based internal audits in FY2023 conducted for all functions, policies, and processes. The risks associated with the business and various processes are identifiedas part of the risk assessment exercise and RCSA conducted by the risk function. The internal audit team ensures that all risks identifiedand captured in the RCSA are addressed in the audit process. The audit process includes elements to assess possible risks to organisational business performance, business sustainability and reputational risk. All key risk policies are reviewed and audited by the auditors to ensure that the design of the policy addresses the potential risks, and that the policy is correctly implemented to give the desired results. The Internal Audit team of the Company operates under the supervision of the Audit Committee of the Board (ACB), thereby ensuring its independence. The effectiveness of internal controls in terms of the Companys internal processes and regulatory guidelines are regularly reviewed by the ACB and wherever necessary directions are passed for the required compliance.

A comprehensive compliance training programme ensures continuous employee education and awareness for all new and existing employees.

HUMAN RESOURCES

The Company is a rapidly growing organisation, with average employee age being 34 years. The overall employee strength stands at 3,907 as on March 31, 2023. Strong and stable Senior Management has an average tenure of ~14 years with the organisation. FY2023 has witnessed some strong HR initiatives around all aspects of the employee lifecycle:

Focus on Talent Acquisition Framework

• Creation of talent pipeline through comprehensive Campus Hiring Program

• Partnering with NGOs working in the field of empowerment of people with disabilities to hire persons with disabilities.

Robust Organisation Structure Design and Implementation Mechanism

• Scientific and comprehensive process of organisation structure, designed with clear linkages to productivity metrics

• Organisation-wide role evaluation exercise undertaken to ensure retention of talent, market parity and create avenues of career progression

• Robust career progression process and principles established through:

• Individual development plan for employees in the middle and senior management level, ensuring the enhancement in the behavioural as well as technical skills

• Job rotation framework for employees to move inter / intra function to create an agile workforce

Highly Effective Learning and Development Domain in the Organisation

• Executive education program has been deployed in collaboration with Management Development Institute, Gurugram. The program has been conceptualised for identifying and grooming high performers at Band 5 and 6 towards retention and engagement.

• For developing the leadership teams and enabling collaboration across organisation, SVP and VP group coaching has also been done. Coaching and grouping of these employees was done post 360-degree assessment for identifying opportunity areas. Enabling digital mindsets and capabilities has remained as one of the focus areas for Learning and Development and multiple batches of programs around data science, AI and Machine Learning have been deployed for both IT and non-IT functions. The programs have been very well received, and leadership reported positive impact.

• To address the challenges of developing people management skills, "Sales Excellence" and "Leading with Empathy", centred around design thinking has been deployed. Pilot batches have been run with positive feedback from participants and business leaders.

Digitisation of HR Processes

The Company started its digital transformation journey with a consistent focus on change management. The Company has envisioned Human Resources to grow as a digital workspace. Through technology-enabled solutions that have a user-centric approach, adequate information, and the right strategy, the Company continues to evolve and transform HR processes and drive business forward holistically. Here is a brief overview of the Companys journey in FY2023:

Happy to Help - Employee Ticketing Module

This workflow enables an automated channel between employees and HR and keeps a track on queries received and responses delivered.

EMA (Employee Multi-purpose Assistance)

EMA is an advanced AI-powered chatbot, enabled to answer all HR related queries. It is available 24x7, keeps an employee updated with latest notifications and has many more advanced features.

Mobile Application for attendance with Common QR code

With the help of a QR code, employee can now download and use ESS Spectra App and can view his/her attendance. It also enables raising and approving attendance regularisation through mobile application.

Talent Management Profile for Employees

A single document which includes complete work history of an employee. The last three performance ratings and competency scores, education, and work experience etc. can be viewed.

Several initiatives for women colleagues including financial wellness training programme under the "Align, Inspire, Mentor" (AIM) network which have been introduced for women colleagues across the organisation.

Employee Wellness and Engagement

The corporate sector in India has witnessed increased employee churn post COVID-19 on account of many reasons – demand for good talent, return to work from office norms etc. The Company has taken various employee engagement initiatives as listed below to increase employee connect and boost employee morale and loyalty:

• Quarterly employee townhalls have been conducted across India, SMT connects have been initiated in every quarter to enhance the visibility, dialogues with Senior Leadership.

• HR connects have been initiated across locations enabling the employees to share their feedback / concerns in person with the HR team.

• AMIGO Buddy program introduced for new joiners.

A willing pool of amigos have been created to assist the new joiners since August 2022.

• Several initiatives for women colleagues including financial wellness training programme under the

"Align, Inspire, Mentor" (AIM) network which have been introduced for women colleagues across the organisation. A major highlight of the year has been inviting Ms Babita Phogat, World renowned female wrestler, on International Womens Day to share her experiences with the employees.

• The Company has won "Golden Peacock – National Training Award", awarded by Institute of Directors for the first time.

• The Companys Wellness Platform, Life 2.0 Edition FY2023 – Back to Basics launched to provide health and wellbeing services, with initiatives like:

• Tele-consultation service with unlimited free generalist and specialist consultation.

• Mental Health - Employee Assistance App.

• Relevant webinars have been conducted on themes of Ayurveda, Financial Wellness, Women and Family Wellbeing.

Corporate Social Responsibility

The Company has marked its presence through CSR initiatives in FY2023 to strengthen public infrastructure, benefiting thousands of needy individuals, including youth, women, elderly and people with disabilities in areas of education, health, disaster management, environment sustainability and skill development. Detailed description about the Companys CSR and its impact has been provided in the CSR section of the Annual Report.

FINANCIAL PERFORMANCE

Given under is a snapshot of the financial results for the year ended March 31, 2023 and the previous year:

( in Crore)

Particulars	FY2023	FY2022	% Change
Total Income	14,286	11,302	26%
Finance Costs	1,648	1,027	60%
Operating Costs	7,448	5,844	27%
EBCC	5,190	4,430	17%
Credit Costs	2,159	2,258	-4%
PBT	3,031	2,172	40%
PAT	2,258	1,616	40%

Total Income increased from 11,302 crore in FY2022 to

14,286 crore in FY2023 registering a YoY growth of 26%. This has been a result of the following key factors:

• Fees and commission income has increased by 26% from

5,227 crore in FY2022 to 6,604 crore in FY2023. Business development incentive income has increased by 65% from 448 crore in FY2022 to 740 crore in FY2023. The increase in fees and commission income and business development incentives income has been driven by a 22% growth in cards-in-force and 41% growth in spends

• Interest income has increased by 26% from 4,866 crore in FY2022 to 6,153 crore in FY2023. Interest income yield has decreased from 17.6% in FY2022 to 16.7% in FY2023, while average receivables increased by 33%.

Finance costs has increased by 60% from 1,027 crore in FY2022 to 1,648 crore in FY2023 and has been driven by higher cost of funds from 5.2% in FY2022 to 6.0% in FY2023, driven by higher policy and interest rates.

Operating costs has increased by 27% from 5,844 crore in FY2022 to 7,448 crore for FY2023. The cost-to-income ratio has increased from 56.9% in FY2022 to 58.9% in FY2023 driven by business growth.

EBCC has increased by 17% from 4,430 crore in FY2022 to

5,190 crore in FY2023 driven by higher income.

Gross credit costs as a percentage of average receivables decreased from 8.3% in FY2022 to 5.9% in FY2023. Net credit costs (after deducting recoveries from bad debts) as a percentage of average receivables have decreased from 6.4% to 4.3% during the same period.

Net profit (after tax) has increased by 40% from 1,616 crore in FY2022 to 2,258 crore in FY2023.

Balance Sheet as of March 31, 2023

• Total balance sheet size has increased by 31% from

34,648 crore as on March 31, 2022, to 45,546 crore as on March 31, 2023.

• Net worth has increased by 27% from 7,824 crore as on March 31, 2022, to 9,902 crore as on March 31, 2023.

• Gross Credit card receivables have increased by 30% from

31,281 crore as on March 31, 2022, to 40,722 crore as on March 31, 2023.

Asset Quality

Gross non-performing Assets as a percentage of gross advances (GNPA) have increased from 2.22% as on March 31,2022, to 2.35% as on March 31, 2023. Net non-performing assets as a percentage of gross advances (NNPA) have increased from 0.78% to 0.87% during the same period.

Capital Adequacy and Liquidity

As per the capital adequacy norms issued by the RBI, the Companys capital to risk ratio (CRAR) consisting of tier I and tier II capital should not be less than 15% of its aggregate risk-weighted assets on the balance sheet and of the risk-adjusted value of off-balance sheet items. CRAR of the Company stands at 23.1% as on March 31, 2023, compared to 23.8% as of March 31, 2022.

The tier I capital in respect of an NBFC-ND-SI, at any point in time, is required to be not less than 10%. The Companys Tier I capital has been 20.4% as of March 31, 2023, compared to 21.0% as of March 31, 2022.

The Company enjoys the highest credit rating from CRISIL and

ICRA for both short-term and long-debt programmes as below:

• CRISIL Long Term - AAA/Stable

• CRISIL Short Term - A1+

• ICRA Long Term - AAA/Stable

• ICRA Short Term - A1+

The high credit ratings depict the robustness of the Companys liquidity management framework and its ability to meet financial obligations. The Company has access to a diverse source of funds, and its borrowing composition consists of multiple bank lines, commercial papers, and debentures. As on March 31, 2023, the Company had 4,607 crore of unutilised banking limits, which translates into 18% of sanctioned banking limits which is more than sufficientto meet its future obligations. The

Company also has a robust Asset Liability Management process with positive cumulative mismatches across all buckets.

Segment-wise or Product-wise Performance

There is only single reportable segment ("Credit cards"), as envisaged by Ind AS 108 Segment reporting, specified under section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules 2014. Further, the economic environment in which the Company operates is significantly similar and not subject to materially different risks and rewards.

Accordingly, as the Company operates in a single business and geographical segment, the reporting requirement for primary and secondary disclosures prescribed by Ind AS 108 are not required to be given.

Key Ratios

Particulars	FY2023	FY2022	Change
Interest Income Yield	16.7%	17.6%	-97 bps
Net Interest Margin	12.1%	13.9%	-175 bps
Cost to Income	58.9%	56.9%	205 bps
Return on average assets	5.6%	5.4%	20 bps
Return on average equity	25.3%	22.8%	245 bps
EPS (basic)	23.92	17.16	39%
Financial Leverage (Debt/	4.3	4.1	5%
Equity = Liabilities/Tier 1
Equity)
Total Capital Adequacy Ratio	23.1%	23.8%	-75 bps
Gross NPA	2.35%	2.22%	13 bps
Net NPA	0.87%	0.78%	9 bps

Explanation of Return on average equity

Return on average equity (ROAE) has increased from 22.8% in FY2022 to 25.3% in FY2023. Return on average assets (ROAA) has increased from 5.4% in FY2022 to 5.6% in FY2023. The following table provides a summary computation of the ratios:

ROA tree as a percentage of average total assets

Particulars	FY2023	FY2022	Change
Total Income	35.4%	37.8%	-236 bps
Finance Costs	4.1%	3.4%	65 bps
Operating Costs	18.5%	19.5%	-107 bps
EBCC	12.9%	14.8%	-194 bps
Credit Costs	5.4%	7.5%	-219 bps
PBT	7.5%	7.3%	25 bps
Taxes	1.9%	1.9%	6 bps
PAT (ROAA)	5.6%	5.4%	20 bps
Average Assets/Average	4.5	4.2
Equity
ROAE	25.3%	22.8%	245 bps

Prospects

The payment industry in India along with retail lending space has been witnessing rapid expansion over past few years. There has been increasing push from government and regulator to increase digital payments in the country. The credit card penetration in India still remains at very low levels compared to advanced economies in the world, thus providing tremendous growth opportunities for the Company. With an aim to increase the Companys share in both spends and cards-in-force and maintain a profitable growth, the Company has identified the following focus areas.

Diversified sourcing

The Company shall focus to acquire cards across the diversified sourcing channels which includes open market and SBI customer base across both traditional point of sale as well as digital channels. The Company shall continue to leverage the large customer base of its parent bank, State Bank of India. We remain committed to expanding premium accounts through all customer acquisition channels.

Leverage technology

The Company aims to increase its digital sourcing and has launched SBI Card SPRINT, an end-to-end digital application process for customers that enables instant card issuance to existing and new to company segments. The new process offers digital application submission on the Companys website, Digital KYC (using Digilocker), alternate data integration and instant decision-making based on AI and ML models for the customers with real-time card issuance.

Cobrand Partnerships

During the year, the Company launched new cobrands with Aditya Birla and PSB Bank and will continue to explore cobrand opportunities with online and premium partners. This helps the Company expand its product offerings to cater to niche customer segments of its partners.

Customer Engagement

The Company is prioritising expanding its portfolio by increasing spends and receivables through increasing engagement with customers through merchant alliances and targeted offers. The Company aims to customise the offerings across its customer segments. It is also focussed on growing interest-earning assets through higher EMI penetration.

Customer Servicing

The Company is committed to maximising customer satisfaction by providing superior service and products. The Company shall continue to utilise its human and technical resources to achieve this objective. The digital initiatives for servicing our customers such as chatbot, WhatsApp servicing are helping the customer resolve their queries fast. The Company plans to launch more such initiatives leveraging AI.

Risk Management

The Company shall continue to monitor and intervene as necessary in response to emerging risks, such as credit, information security and enterprise risks. The Company is focussed towards improving its asset quality through enhanced monitoring, improved risk policies and portfolio interventions.

The Company is well positioned to face challenges and capitalise on the vast opportunity in the credit card market. It remains committed to exploiting the opportunities in a promising space and to maximise value for all its stakeholders.