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Home / Markets / Mark To Market /  HDFC Bank shares break their dull trend as credit card ban lifted

India’s most valuable lender, HDFC Bank Ltd is back in the credit card business. Investors love this as the shares of the bank rose more than 3% in the first half hour of trade today. For perspective, the bank’s shares have been underperforming the broad Nifty ever since it was restricted from issuing fresh credit cards in December 2020.

In a stock exchange filing, HDFC Bank said that the Reserve Bank of India (RBI) has lifted the restrictions on issuing cards but that on digital launches stays. The bank would not be able to launch any new digital products until the banking regulator gives clearance on this front. The ban was put after the bank reported repeated outages in its digital platforms affecting a large swathe of transactions by customers.

Analysts at Motilal Oswal Financial Services Ltd point out that HDFC Bank lost nearly 0.6 million credit card customers due to the ban while its competitors such as SBI Cards and Payment Services Ltd, ICICI Bank and Axis Bank gained market share. Despite ceding market share to peers, HDFC Bank still services the biggest portion of the credit card pie with a share of nearly a third of the market. Between December 2020 and June this year, the biggest beneficiary of the credit card ban on HDFC Bank has been ICICI Bank. The latter reported 28% growth in its credit card spends even as the former saw a decline of 11%. The card subsidiary of the largest lender State Bank of India (SBI), was the second biggest beneficiary with a market share gain of roughly 10 basis points.

Indeed, the restrictions had weighed on the private sector lender’s retail loan growth and its fee income as well. Credit cards contributed 25-30% to the bank’s fee income. During the June quarter, the bank’s fee income was

More than the lifting of the ban, the timing of it will help the private sector lender, analysts point out. Banks are pinning their hopes of a revival in retail credit growth on the upcoming festival season. Credit cards and unsecured personal loans typically see the biggest growth during this period. “HDFCB typically adopts an aggressive stance during the festive season and offers various discounts on consumer durable products to drive spends and accelerated growth in consumer durable financing. Therefore, lifting of RBI restrictions before the festive season augurs well and we expect the bank to turn more aggressive on credit cards over the next few months," the Motilal report said.

Under pressure over the past one year, HDFC Bank shares trade at 3.6 times estimated book value for FY22, below that of smaller peer Kotak Mahindra Bank. ICICI Bank has been successful in narrowing the valuation gap with HDFC Bank after the ban.

 

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