One parent, two fates: Why SBI Life soars, but SBI Card lags

State Bank of India (SBI), the country's largest bank, announced its quarterly earnings over the weekend. It saw a decline in profit due to one-time provision write-backs made in the base period. The bank cited the spillover effects of a tariff-led slowdown while revising its credit-growth projection downward for FY26. After years of outperformance driven by recapitalisation, the latest quarter can prove to be a leveller.

SBI's moderate performance is likely to split the group’s performance right down the middle. SBI Life Insurance Company and SBI Cards and Payment Services announced their Q4 earnings on 24 April after trading hours, and market reaction has been on two extreme ends since then. While SBI Life appreciated by 9%, SBI Card has corrected by more than 5%.

To be sure, the earnings season has simply reaffirmed the split in the long-term performance of SBI Life and SBI Card. Over the last five years, SBI Life has delivered more than 130% return, while SBI Card is almost halfway behind at just about 55%.

Some of the differences are attributable to diverging industry fortunes. While the lending segment has seen strained growth and rising stress recently, insurance has continued to grow despite hurdles.

But even within their respective industries, despite equally strong parentage, SBI Life has emerged as a dominant player while SBI Card has remained a laggard. Let us look into the drivers which make SBI Life shine, and the factors which hold back SBI Card.

SBI Life has emerged as a market leader

SBI Life has emerged as an outperformer among its peers. Against 4% correction in LIC over the last five years and 40-50% return delivered by HDFC Life and ICICI Life, SBI Life has more than doubled investor wealth during the period. This is primarily attributable to its superior margin profile.

Its margins improved further in Q4 to 30.5% from 26.5% in the previous quarter, surpassing estimates. Value of new business (VNB) margin expanded by 220 bps over the same period last year, and the bottom line saw a robust 27% growth in FY25.

Product-mix supports profitability

While SBI Life’s distribution network primarily comprises bancassurance, which is at risk of being capped by the Insurance Regulatory and Development Authority (Irdai), the latest management commentary indicates that the regulator has not yet had any discussions about furthering the proposal. Moreover, SBI Life’s focus on expanding its agency channel to 30% of its distribution mix will continue to reduce concentration risk.

That said, the agency channel is typically associated with higher costs. As SBI Life adds to its offline branch network and agency channel, its cost ratio has increased from 8.9% in FY24 to 9.7% in FY25. However, its profitability has been supported by its favourable product mix, which is skewed towards high-margin non-par and individual policies. Of course, balance-sheet risk is lower with participating policies. But with the solvency of Indian life insurers far exceeding regulatory requirements, profitability assumes primary focus.

Management is focused on sustaining profitability

The company is launching traditional products to reduce its reliance on market-sensitive Ulips. This should help protect margins even during downswings. Furthermore, the focus is on persistency and renewal premiums.

Renewal premiums, being sticky, provide higher revenue-visibility and support margins as well. For instance, in Q4, while first-year premium saw a modest 7.3% year-on-year growth, renewal premium grew faster at 12.9%, thereby supporting overall growth.

A related indicator is persistency, which measures the percentage of premiums renewed after a certain period. SBI Life’s 13th month and 61st month persistency at 87% and 63% respectively, are at the higher end in the industry.

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Leading despite headwinds

The industry opened up to private players in 2000, and foreign investors were allowed to raise their stakes to 100% in the latest budget. Larger policies lost out on tax benefits in 2021, and surrender penalties were capped in October last year.

The regulator’s whip has extended into distribution as well. Multi-insurer empanelment of agents is being proposed, and the regulator has also been cracking down on bancassurance as a distribution channel. More than 60% of SBI Life’s policies are sold through bancassurance, while 28% are sold through agents.

This has weighed on average premium equivalent (APE), which grew at a modest 9% year-on-year in Q4. But SBI Life has been working on reducing the reliance on bancassurance, while also launching new products in keeping with the new regulations on surrender penalties. Its business is also expected to remain resilient by virtue of its higher-than-industry surrender values and falling surrender ratio. SBI Life has continued to dominate in individual rated premium with industry-beating growth of 12% and market-share of almost 23% in the private market.

The significance of bancassurance and insurtech partnerships

SBI Card: Retail credit is slowing

In the easy money era after the pandemic, retail credit grew at a breakneck pace and drew the regulator’s wrath. The rise in risk weights for unsecured retail credit hit the brakes on the supernormal growth seen in credit cards. SBI Card was no exception. Its credit growth slowed down sharply from 25% in FY24 to 10% in FY25.

If this had been the end of the story, it could be chalked up to short-term pains across the industry. But what’s worrying, is that SBI Card has been ceding ground. It has a mass appeal, and that has held it back to an extent when it comes to securing premium co-branding deals in metro cities.

Since SBI Card is missing out on urban customers who tend to have higher-value card spends while also facing stiff competition from UPI for low-ticket spending, it has been ceding ground. Even as card issuances have helped it retain market share of cards in force at 18-19%, it has steadily lost share in spending—from 19.2% in FY22 to 15.6% in FY25.

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Rising stress continues to affect profitability

Some of the slowdown in credit growth and erosion of market share can be attributed to the company holding back on growth to control asset quality. SBI Card has a higher exposure to non-metro regions, which have seen deeper stress in retail loans. While SBI Card has worked on expanding in metro regions over the years, the card issuances in Q4 were again skewed towards tier-3 and exacerbated the non-metro exposure.

The company continued its downward trend on gross NPA, which reduced by 17 bps compared to Q3. Its credit costs also declined by about 40 bps sequentially to 9% in Q4. But it is still higher than peers, 143 bps higher year-on-year, and a long way away from the long-term run rate of about 7%.

In fact, it is due to credit costs, which increased by 32% year-on-year, that despite an 8% increase in revenues over the same period last year, profits shrank by 19% over the period. The latest quarter’s earnings pared down hopes, which had soared following asset-quality green shoots seen in Q3. While monetary easing and improved borrowing mix can help interest costs even as yields remain strained amid competition, sharp upgrades are contingent on reclaiming spending market share and cutting down credit costs.

For more such analyses, read Profit Pulse.

Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa

Disclosure: The author holds shares of some of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.