Mumbai: HDFC Bank Ltd has quietly overtaken Citibank NA’s local unit and State Bank of India (SBI), to become India’s second largest credit card issuer with 4.2 million cardholding customers.
HDFC Bank, which is India’s second largest private sector lender, is now behind only ICICI Bank Ltd, which has issued around 8.5 million credit cards in a country where consumer spending has surged in line with economic expansion and growing personal incomes.
HDFC’s growth is impressive because it only started in 2003 while Citibank is the oldest credit card issuer in India, having started in 1990. Citi has a credit card base of about 3.8 million. State Bank, which entered the business in 1998 by forming a joint venture with GE Capital Services, the world’s largest issuer of private label credit cards, has a base of some three million.
HDFC Bank, which began its credit card business three years after ICICI, has surged ahead of Citibank and State Bank by marketing cards to its own customers.
What distinguishes HDFC Bank from the competition is that it has not issued any co-branded card. These cards are jointly sponsored by a bank with partners, such as departmental stores, airlines and oil marketing firms. Co-branded cards give issuing banks access to new customers and the cardholders are often offered incentives in the form of discounts on merchandise.
“We have followed a consistent strategy that relies on three pillars — delivery of best possible customer service, focus on internal customers, and offering simple products,” said Parag Rao, head of product portfolio and service delivery for credit cards at HDFC Bank.
Most banks in India have aggressively expanded their credit card base with offers such as waivers on annual fees to cash in on rising consumer spending in Asia’s third largest economy. But, with interest rates rising and liquidity under pressure, some banks have slowed on issuing cards.
Growing card base
“The annual fee waiver was one step that impacted the entire industry. We were also forced to waive fees on our cards as most players were doing it,” said Rao.
The bank’s card base has grown by more than 29% annually in the past two years— from 2.4 million in fiscal 2006 to 3.8 million in 2008. This is in line with the industry as the overall credit card base has grown from 17 million in 2006 to 27 million in 2008.
However, some aggressive players have been going slow on customer acquisition and even shrinking their portfolio in the face of rising non-performing assets, or NPAs, which have risen to 10-15% of total credit card lending from 5-8% one year ago.
Apart from the big four — ICICI Bank, HDFC Bank, Citibank and SBI — other big credit card issuers include Hongkong and Shanghai Banking Corp. Ltd, or HSBC, and Standard Chartered Bank. New entrants such as Axis Bank Ltd, Deutsche Bank AG and Barclays Bank Plc. are also aggressively chasing customers. “Citibank’s strategy has always been to get the maximum share of total credit card spending in the market,” says Sandeep Bhalla, business manager for credit cards at Citibank. “We have supported this with strong customer experience and service initiatives. As a result, we have maintained our leadership position in total spending.”
HDFC’s Rao said the bank’s NPAs are lower than the industry average, and its operating cost is also among the lowest in the industry. HDFC Bank’s focus on its own customers has allowed the lender to pare operating costs.
HDFC Bank’s customer base is in excess of 12 million. Of the 4.2 million credit card holders, 70% are the bank’s customers.
“Marketing the product to internal customers has helped the bank reduce its acquisition costs, which we pass on to the customer by giving better pricing,” Rao said. “We have not chased bargain seekers in the market as they keep moving from one issuer to another. We have never blindly acquired customers or offered them low interest rates as against competition to retain customers,” added Rao.
SBI’s credit card unit did not respond to an email query sent by Mint.
Diwakar Gupta, chief executive of SBI Cards and Payment Services Pvt. Ltd, recently told Mint his organization was consciously cutting back on new customers as defaults were rising in smaller cities. Gupta added that SBI Cards was increasing checks on customer profile and also looking at leveraging existing bank customers.
Market leader ICICI Bank’s strategy has been to boost volumes. The bank first wants to put its card in more and more customers’ wallets and then offer various schemes to push spending.
Of its 8.5 million credit card base, only 40% are bank customers. “You’ll will have to appreciate that market leaders have to feed the market and work with other agents to develop the market. Hence, the phase of cash-backs and discounts,” said an ICICI Bank official on the condition that he wouldn’t be named.
The average spending on credit cards in India is in the range of Rs2,200-2,400 per month, low by global standards, but it has been rising in recent years. Around 30-45% of the customers roll over part of their dues, on which they would need to pay interest.
HDFC Bank refused to share the data of the average spending on its credit cards but said customers roll over about 50-65% of the outstanding balance every month.
According to the ICICI Bank official, the lender is working with customers to ensure that they do not roll over outstanding dues over a long period. Those who are doing it are being advised by the bank to convert the outstanding dues into a personal loan.