HDFC Bank Can Start Issuing Credit Cards Again As RBI Eases Restrictions

The Reserve Bank of India has partially lifted restrictions on HDFC Bank Ltd., which had been put in place in December.

“...the RBI vide its letter dated Aug. 17, 2021 has relaxed the restriction placed on sourcing of new credit cards. The board of directors of the bank has taken note of the said RBI letter,” the bank said in a statement to exchanges on Wednesday.

In a separate media statement, the private lender said, “As stated earlier, all the preparations and strategies that we have put in place to ‘come back with a bang' on credit cards will be rolled out in the coming time.”

The bar on digital launches under the Digital 2.0 initiative of the bank, however, will continue till further review by the regulator.

“We will continue to engage with the RBI and ensure compliance on all parameters,” HDFC Bank told the bourses.

The decision comes after a third-party audit of HDFC Bank's IT infrastructure was conducted on the RBI's orders earlier this year. The bank has been in discussions with the regulator for months on improvements required, a person in the know said on the condition of anonymity.

The ban on new credit cards and digital launches had been introduced after a series of digital outages at HDFC Bank over the last two years. That had caused considerable difficulties for customers who were unable to access digital banking services, sometimes for days.

The ban on issuing new credit cards had hampered growth in HDFC Bank's retail banking division. The private sector lender continues to be the largest credit card issuer in the country, by number of cards, with 1.48 crore cards as of June.

In HDFC Bank's absence, other banks, especially ICICI Bank had ramped up their credit card issuances in India. As of June, ICICI Bank had 1.1 crore credit cards outstanding. SBI Cards & Payments Services Ltd, a subsidiary of State Bank of India, reported a credit card base of 1.2 crore credit cards, as of June.

HDFC Bank lost close to180 basis points of market share as of May 2021 since end of November 2020 to close to 24%, while ICICI Bank and SBI Cards gained 130 basis points and 37 basis points to 17.4% and 19.2%, respectively, said Macquarie Research in a note on Tuesday.

“We believe HDFC Bank, having added close to 36 lakh liability accounts from January 2021 to June 2021, can easily capture market share in the credit card space. HDFC Bank roughly used to add 1.5-2 lakh credit cards per month pre-Covid. Hence, since December 2020, the bank perhaps failed to add 14-18 lakh credit cards. There is a large customer base to which they can cross sell in our view,” Macquarie's Suresh Ganapathy wrote.

Asutosh Mishra of Ashika Broking says that a big hangover on the HDFC Bank stock has been lifted. "There is a sentimental component to this lifting of the ban which will augur well for the HDFC Bank stock."

According to Mishra, the bank adds about 70,000 new customers every month. The customers added since December will give the bank a good runway to aggressively issue new cards. "The earnings benefit will take some time to show," Mishra said.