Recovery of lost credit card share will be ‘gradual’, says HDFC Bank

While HDFC Bank has pledged to recoup its lost market share in the credit card segment in three to four quarters by aggressively sourcing new cards, brokers say it’s a bit hard to come by, account given the competitive landscape, with other players in the market becoming equally aggressive to gain market share.

Kotak Institutional Equities in its Monday report said, “We would like to believe that the recovery in market share is likely to be gradual, if not non-existent. All the key players including Axis Bank are now willing to expand their credit card portfolios as they have tested quite well against Covid-19.

“With retail asset quality holding up well, competition is expected to be strong. The ability to grow market share in this environment will likely be challenging,” he added.

After nearly 10 months of restrictions, the Reserve Bank of India (RBI) lifted the embargo on issuing new cards in August last year. After the restrictions were lifted, the bank said it would return to the credit market in force and make up for lost time.

Since August 2021, the bank has added over 1.3 million credit cards to its portfolio through January (latest RBI data). Still, the bank has lost 20 basis points (bps) of market share, in terms of number of cards, while the main gainer among the big players has been Axis Bank, with a gain of 50 bps since August 2021, according to MacquarieResearch.

Similarly, HDFC Bank’s market share in spending has declined by 170 basis points since the embargo was lifted, while SBI Cards and ICICI Bank have gained 130 basis points and 180 basis points respectively. the same period.

Speaking to Business Standard earlier this week, Parag Rao, Country Head of Payments, Digital Banking and Consumer Finance Business, HDFC Bank, said the embargo had impacted its further growth rates. and its market share (number and expenditure).

“It will take us at least three to four quarters to regain our market share growth rate. We will slowly start to see the impact of new issues, which we have been doing since September, as they will now start to contribute to spending. The partnerships, which we announced in December and January, will also start to come into effect,” Rao had said.

Meanwhile, over the weekend, the RBI lifted restrictions on the bank’s digital launches after a 15-month gap.

HDFC Bank’s share price reacted positively to the development, with the lender’s shares closing up 3.25% at Rs 1,442.4 on Monday, compared to the previous day’s close.

Analysts are of the view that with the RBI lifting all the brakes, the bank is well placed to push the launch of the payment and customer experience hubs, vertical neobank and ecosystem platform.

According to a note from Jefferies, lifting the restrictions will help the bank push the aforementioned key digital initiatives over the next six to 12 months. It will also allow the bank to facilitate status quo initiatives, instead of having to seek clarification from the RBI if in doubt, he said.

“The fact that the RBI took nearly 15 months to revoke the ban is a clear indication that it took time to do extensive due diligence and then revoke the ban. We view this development as an important positive step” , Macquarie Research said in its report, adding, “By lifting the ban, the RBI sends a signal that we are on board with the bank’s information technology system and capabilities.

According to Motilal Oswal Financial Services, the operational performance of HDFC Bank has deteriorated after the implementation of RBI restrictions.

Retail loan growth moderated to 7% in 2020-21 (FY21), from 15% in 2019-20 (FY20). A better performance in the wholesale business, however, offset the impact on overall loan growth.

HDFC Bank recorded 14% growth in total loans in FY21, compared to 21% in FY20.

During the embargo period, its net interest margin (NIM) fell by 20 basis points to 4.1%. As a result, pre-provision operating profit (PPOP) growth fell to 18% in FY21 from 23% in FY20.

“However, with the restrictions no longer in place, we expect the momentum in retail lending, driven by the bank’s aggression, to regain lost ground. This, in turn, will improve the growth of its loans, will slightly increase the NIM and lead to higher PPPO growth,” the brokerage said.

Analysts expect the bank’s underperformance to reverse as a key surplus has been corrected. The stock may not hit its previous valuation peak as alternatives have emerged.

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