Home / Markets / Mark To Market /  Why HDFC Bank is struggling to regain market share in credit cards?

In August 2021, the Reserve Bank of India (RBI) had lifted the ban on HDFC Bank Ltd to issue credit cards. Since then, the bank has seen an increase in outstanding credit cards, which is promising. However, HDFC Bank is yet to recoup the market share it enjoyed prior to RBI’s embargo.

In January, the bank’s market share in credit card outstanding stood at 22.8%, lower than 25.6% seen in November 2020 (before the embargo). Similarly, market share in credit card spending, too, has not recovered so far. In January, HDFC Bank’s market share in credit card spending stood at 24.8% vis-a-vis 30.7% in November 2020.

Systematix Shares and Stocks (India) Ltd’s analysts note that HDFC Bank has been a consistent loser. “It’s notable, market leader (HDFC Bank) has been losing its foothold even in a fast-growing market," said a report by Systematix on 8 March.

Analysts at Macquarie Capital Securities (India) Pvt. Ltd said in a report on 7 March that the 30% year-on-year (y-o-y) fall in HDFC Bank’s card fees in 3Q was not seen in other companies. As such, analysts remain watchful of the performance as HDFC Bank has fallen short of expectations in regaining market share.

This slow growth in market share recovery is attributable to a confluence of factors. Primarily, competitive intensity has increased. Other banks have been aggressive in gaining market share. And peers are not the only reason. There is also a threat from the increased united payments interface (UPI) transactions. “UPI volume & value grew at 97.5% & 94.5% y-o-y with stable average transaction ticket size at Rs1,826. Among the large private banks, Axis Bank Ltd, HDFC Bank and ICICI Bank Ltd have been losing market share and Paytm and couple of public sector undertaking banks continue to gain incremental market shares" said the Systematix report.

Additionally, the covid-19 led lockdowns have restricted movement which has meant lesser card spending. Some point out HDFC Bank has more premium customers where discretionary spends such as travel, tourism are hit more.

Meanwhile, HDFC Bank’s shares have risen by about 4% since RBI lifted restrictions on its Digital 2.0 programme. Though analysts do not expect an immediate impact on earnings post this development, it is worth noting that the ability for HDFC Bank to compete in the market has significantly improved.

Recall that in December 2020, RBI had imposed curbs on HDFC Bank issuing new credit cards and introducing new digital initiatives owing to frequent IT system outages. This has been a key factor weighing on the HDFC Bank stock for a while now.

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