The entire gross loan portfolio of the Credit Card Company is not interest earning portfolio. The gross loans (credit card receivables) portfolio is divided into three parts depending upon the interest earning capability:
Transactor receivables: Dues which are paid within the due date of payment and thus company does not earn any interest. Credit Card company earns by way of MDR charged to the Retailer (~ 1% to 2%). Most Corporate Cards are in this Category as they don't believe in paying exorbitant Annual Percentage Rate - APR 24%-36% on Revolving Credit or High Interest on EMI Loans about 15%.
Term loan receivables: Dues are converted in equal monthly payments (EMI) by the customers and thus earn interest income for the company. Term loan usually carries lower interest rate as compared to the Revolver receivables. As per SBI Cards website, the interest on EMI loans is in the range of 14-15%. As per company filings, ~30% of the portfolio is term loan portfolio in 1HFY20 and has been at similar levels in past.
Revolver receivables: Dues which are revolved from current month to next month, earn interest income for the company.
In our study we have found that the Credit Card company's Loan Book is equally split between the above 3 categories.
