Brokerage firm InCred Equities has downgraded ratings on SBI Cards and Payment Services to "Reduce" from "Add" following the increase in the risk weights by Reserve Bank of India.

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Also, it has cut the target price on the stock to ₹600 from ₹1,000 per share earlier. The target price indicates a downside of more than 19% from the previous close of ₹742.60 per share on BSE on Monday.

The downgrade came after a recent RBI circular on increasing risk weight, which will impact SBI Cards adversely.

According to the brokerage, the new norms are impacting SBI Cards the most, with 100% of its portfolio witnessing an increase in risk weight.

With regards to borrowing from banks, SBI Cards again is the most impacted with 77% of its borrowings from lenders, which may become expensive in the coming quarters, the broking firm said in its research note.

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Assume 4.1% capital consumption on an immediate basis, impacting growth & expect a gradual rise in the cost of funds to hurt margins, it added.

InCred is forecasting margins at around 11.5% for the financial year (FY) 2024-2026 as against 12% earlier.

Additionally, the brokerage house has moderated fee income assumption for SBI Cards amid rising competition, but it keeps the credit cost assumption at 6%

Also, it has slashed the average long-term profit after tax (PAT) growth estimate to 15% against 18% earlier, in its excess RoE (return on equity) calculations. It has reduced earnings per share (EPS) estimates by 12.8% for FY25 and by 17.2% for FY26.

Shares of SBI Cards and Payment Services Ltd were trading flat at ₹742.25, down 0.05%, on BSE at 10.38AM.

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(Edited by : Asmita Pant)