HDFC fights for lost ground in credit cards

It is time for HDFC Bank to come up with a new strategy to revive its credit card business and make up its lost time under Reserve Bank of India (RBI)’s ban. The sources with the bank said that re-strategising of the business is underway and it will focus on giving fresh offerings and adding new customers. The bank has so far lost eight months under the ban and around six lakh cards.

On Tuesday, the RBI partially lifted the restrictions placed on India’s largest private lender in December last year, and have allowed the bank to source new credit cards. However, restrictions on the launch of new digital applications will continue.

Motilal Oswal Research said in its report that HDFC Bank had lost nearly six lakh cards since the date of embargo. On the other hand, ICICI Bank quickly ramped up its incremental market share and added around 13 lakh cards in this period in its portfolio, while SBI Card added seven-and-a-half lakh. Axis Bank has also secured around three lakh cards.

“HDFC Bank will have to make up its lost time in the card business through intensive campaigns and aggressive customer additions,” said a Mumbai-based banker. For that they will have to focus on new geographies including tapping semi-urban and rural markets, he added. The experts expect that the bank will turn aggressive during the forthcoming festive season and offer various discounts on consumer products.

Parag Rao, head of consumer finance, digital banking and information technology, HDFC Bank recently said that the bank has made use of the lost period to introspect, re-engineer and innovate its cards business—where it has 15.5 million customers. At the last annual general meeting, Shashidhar Jagdishan, managing director and chief executive officer, said that the bank has complied with 85% of RBI's queries on technology.

During recent quarters the bank has reported moderation in fee income/ net interest income (NII) because of the RBI ban, the Motilal Oswal report said. The fee from credit cards contributes 25% to 33% to the total fee income of the bank. Therefore, the credit card segment is key to the bank's overall profitability.

In December 2020, RBI had temporarily stopped all digital launches of HDFC Bank planned under Digital 2.0, including sourcing of new credit cards. The move was in response to multiple incidents of outages in the net banking/payment facilities over the last two years. In February, the regulator also appointed an external IT firm to carry out special auditing of the bank’s IT infrastructure. The removal of the ban by RBI is expected to be based on the final audit report.