Indian lenders have been grappling with elevated cost of funds as the country's central bank kept lending rate steady at 6.50% since February 2023 after raising rates by 250 basis points since May 2022.

The State Bank of India-backed credit card services provider said finance costs rose 50% in the quarter ended Dec. 31 from last year, pushing total expenses up by 34.7%.

Moreover, the cost-to-income was higher due to increased cashbacks offered during the festive season, it said.

Aggregate amount spent by cardholders grew 41% to 968.60 billion rupees for the company, as affluent Indians spent more amid festivities.

Card-in-force, the sum of all credit cards issued by the company, grew 16% from the year-ago period.

Total revenue from operations increased 31.8% to 46.22 billion rupees from a year earlier, helped by a near-29.5% jump in interest income and 37% jump in income from fees, commissions and others.

Still, SBI Card reported a profit after tax of 5.49 billion rupees ($66 million), well below analysts' estimates of 5.73 billion rupees as per LSEG data.

Net interest margin (NIM), the difference between interest earned and paid expressed as percentage, fell 25 basis points to 11.3% from last year.

Gross bad loans as a percentage of gross advances - a measure of asset quality - slightly worsened to 2.64% at the end of the December quarter, from 2.43% at the end of September.

Shares of the company ended 1.7% higher ahead of the results.

($1 = 83.0880 Indian rupees)

(Reporting by Nishit Navin and Dimpal Gulwani in Bengaluru; Editing by Varun H K)