HDFC Bank’s credit card base shrinks by 3L during Dec-Mar

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The Reserve Bank of India’s (RBI) embargo on sourcing of new credit card customers by HDFC Bank may have started to affect the lender’s card base. According to data released by the central bank, the number of credit cards outstanding at HDFC Bank fell by about 3.23 lakh between December 2020 and March 2021 to 1.5 crore.

The lender has long been the market leader in terms of cards in circulation as also spends, but the RBI’s decision to penalise the lender for lapses in its digital services may be slowing down the growth. It was not immediately clear whether the card base shrank due to a churn in cards or a conscious weeding out of inactive cards by the bank. Queries sent to the bank remained unanswered till the time of going to press.

ICICI Bank may turn out to be the biggest beneficiary of HDFC Bank’s absence from new issuances. In March, it continued to lead in fresh issuances, accounting for nearly 52% of new cards, showed data released by the RBI. The total number of new credit cards issued during the month stood at 4.02 lakh.

According to an HDFC Bank official who spoke on condition of anonymity, the lender is gearing up to return to the market once the regulatory penalty is reversed. “We are using this time to build up our liability base and keep our system ready to hit the market once the embargo is lifted,” he said. Historically, the bank has issued a majority of its credit cards to its own deposit holders.

During a call with analysts after HDFC Bank’s Q4FY21 results, the management said it had opened about 2 million new liability relationships in the March quarter and about 7 million liability during the full year. It has more than 2.5 million corporate salary customers during the year.

Chief financial officer Srinivasan Vaidyanathan said the bank is continuously investing in increasing spends, depth and width, revolve behaviours, product upgrades, line enhancements and loans on cards. “The impact of the non-issuance of cards is on new employees in corporates, new corporates on-boarding, etc. This loss of new customers can normally be made up within a few quarters of stoppage being lifted, since the bank continues to source liability customers who will be pre-approved,” he said, adding, “About three-fourths of our sourcing comes from existing customers of the bank.” In the meantime, the lender is focused on engaging with existing card customers who are dormant or inactive in order to “resuscitate” them.

So far, analysts have been hopeful about the bank’s ability to bounce back in its traditional area of strength. After the Q4 results, Kotak Institutional Equities said in a note, “Overall, we have not seen any business impact as the liability franchise is holding up well. The bank is working with its existing credit card base to generate business currently, but this issue would have an impact in the medium term if not resolved soon.”