HDFC Bank aims to recoup credit card spend market share loss

HDFC Bank, the largest issuer of credit cards in the country, expects to see benefits of the new cards it has issued post the Reserve Bank of India (RBI) embargo from this month itself.

This is because there is a 6-8 months lag for spends to pick up on new cards, said Parag Rao, country head, payments business, digital banking & consumer finance, HDFC Bank.

Despite the RBI lifting embargo on HDFC Bank for issuing new credit cards in August 2021, the bank has not been able to recoup its market share in credit card spends. Since August 2021, HDFC Bank’s market share — in terms of spend — is down 170-basis points (bps).

And, when compared to the pre-embargo period, spends market share of the bank has gone down from 31 per cent to 25 per cent as of January 2022.

“The nine months of embargo translates into little over 10 months of non-issuance of cards. This impacts the market share and, probably, a little more in terms of cumulative effect of spends on the market place. We will slowly start seeing the impact of the new issuance, which we have been doing since September, because they will now start contributing to the spends. The partnerships, which we have announced in December and January, will also start kicking in,” Rao said.

RBI had placed an embargo on the bank, barring it from issuing new credit cards for close to 10 months.

Rao said, “The embargo has impacted us on our incremental growth rates and it has impacted us on our market share (number and spends). It will take us at least 3-4 quarters to get back to our growth in market share run rate.”

Meanwhile, at a time when HDFC Bank is losing market share, its peers — ICICI Bank and SBI Cards — have gained share in terms of spends.

While HDFC Bank lost 170 bps since August 2021, ICICI Bank and SBI Cards gained 130 bps and 180 bps of spend market share, respectively, over the same period.

Analysts say they remain watchful of HDFC Bank’s performance in this segment, given the bank reported a 30 per cent year-on-year (YoY) decline in card fees in Q3. This was not seen in other card players.

“HDFC Bank is lagging our expectations in terms of recouping its lost market share in credit cards. We remain watchful of its performance here, where it had dominant market share in the past. This is especially important since HDFC Bank reported a 30 per cent decline in card fees in Q3, which was not seen in other card players,” said Suresh Ganapathy, associate director, Macquarie Capital.

According to RBI data, HDFC Bank saw spends fall 8 per cent in January, followed by SBI Cards with 6 per cent fall, and ICICI Bank with 5 per cent dip.

However, Axis Bank and Kotak Mahindra Bank were the only banks that did not see a drop in spends in the same period.

Overall, credit card spends in January dropped 7 per cent on a month-on-month (MoM) basis as Omicron impacted travel and discretionary spends.

In January 2022, credit card spends (at PoS & ATMs) totalled Rs 87,499 crore compared to Rs 94,202.44 crore in December 2021, and Rs 89,492.68 crore in November 2021. In October, credit card spends totalled Rs 1.01 trillion. This is the first time such spends crossed Rs 1 trillion.

Although January saw a 7 per cent contraction in spends on MoM-basis, on YoY, spends were up almost 35 per cent.

On a two-year compound annual growth rate (CAGR)-basis, spends were up 14 per cent in January.

Analysts said, while the third Covid wave had an impact on card spends in January 2022, they are optimistic on discretionary spends picking up.

The banking system reported a net addition of 1.3 million credit cards in January 2022, led by healthy traction in ICICI Bank, Axis Bank and HDFC Bank.