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HDFC Bank Ltd, India’s most valuable lender, is back in the credit card business after an eight-month long ban by the banking regulator. The private sector lender, in a stock exchange filing, said that the banking regulator has lifted these restrictions, although those on new digital launches stay. HDFC Bank faced these restrictions as a penalty due to frequent outages in its digital platforms that affected a large swathe of customer transactions.
Credit cards contributed to 25-30% of the bank’s fee income, and credit card outstandings formed roughly 11.5% of the bank’s retail loan book as of June. Credit cards have been growing faster than the overall retail loan book for HDFC Bank in the years before the pandemic. Ergo, the impact of the ban on its metrics cannot be ignored.
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More importantly, HDFC Bank is the largest credit card issuer with a market share of 23.6%. The bank saw its market share erode by 200 basis points (bps) since the ban and competitors such as SBI Cards and Payment Services Ltd, ICICI Bank and Axis Bank gaining at the cost of the lender. ICICI Bank witnessed a market share gain of 140bps, and 35% growth in its credit card spends since November 2020. The private sector lender has been the biggest beneficiary of HDFC Bank’s inability to issue cards.
More than the lifting of the ban, the timing of it will help the lender, analysts point out. Banks are pinning their hopes of a revival in retail credit growth on the upcoming festival season.
“HDFC Bank typically adopts an aggressive stance during the festive season and offers various discounts on consumer durable products to drive spends and accelerated growth in consumer durable financing. Therefore, lifting of RBI restrictions before the festive season augurs well and we expect the bank to turn more aggressive on credit cards over the next few months,” analysts at Motilal Oswal Financial Services Ltd wrote in a note.
Those at Jefferies India Pvt. Ltd believe that the share price has scope to shake off its underperformance vis-à-vis the broad Nifty following the easing of restrictions.
That said, HDFC Bank shares didn’t show enough cheer on the news. Shares ended largely flat on Wednesday after a more than 3% gain in early trade.
While HDFC Bank certainly hopes to “come back with a bang”, the bank needs eager borrowers. The potential threat of a third wave of covid-19 and a weak consumption sentiment have dulled the hope of a festival season boost. An uncertain outlook on retail asset quality adds to these concerns.
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