HDFC Bank to issue 300,000 credit cards a month to regain lost market share

Will raise issuance to 500,000 credit cards per month beginning February 2022

With the Reserve Bank of India (RBI) lifting the embargo on HDFC Bank on issuing new credit cards, the lender is now looking to get back to its pre-embargo run rate of issuing 300,000 cards per month in the next 2-3 months. Immediately following that, it will look to issue 500,000 credit cards every month beginning February 2022.

HDFC Bank is expecting to regain its lost market share in the outstanding credit cards space in the next 3-4 quarters.  At the end of last November (pre-embargo), HDFC Bank had 15.38 million outstanding credit cards in the market, but this number dropped to around 14.82 million at the end of June 2021.

While HDFC Bank has held on to its spending market share despite the embargo, its market share in outstanding cards dropped 200 basis points to 23.6 per cent from 25.6 per cent. Other credit card issuers have gained market share at the expense of HDFC Bank over the last few months. ICICI Bank has been the biggest gainer as it has gained 140 basis points in outstanding credit card market share and has become the second-largest credit card issuer in terms of spends.

Because of the ban, HDFC bank lost 558,545 credit cards between December and June, while its rivals ICICI Bank, SBI Cards, and Axis Bank gained 1.3 million, 748,707, and 252,145, respectively.

Addressing the media on the credit card issue, Parag Rao, Group Head–Payments, Consumer Finance, Digital Banking & IT, HDFC Bank, said, “In the last 8-9 months, with the RBI’s embargo on the issuance of new credit cards, we sat back and became introspective about our products and services, looked at our back end processes, looked at what is happening in the marketplace, relooked at some of our strategies, and prepared for what’s going to happen in the payments space in the next 2-3 years.”

A significant portion of new acquisitions, which will happen in the coming quarters, will come from the bank’s existing liability base. The bank had ramped up its liability acquisition in the last 8-9 months. It was sourcing in excess of 400,000 accounts every month on the liabilities side. Add to that, the bank already has the 60 million base available with itself, which it can tap into.

“We have significant headroom to grow and that is the reason why our strategy will continue to be largely focused on internal customers. Right from the inception of the business, we have always maintained that a large portion of our credit card portfolio will always be our internal customers. So, this strategy will continue”, Rao said.

Having said that, the bank management has said, it will work closely with its alliance partners in the ecosystem, cutting across segments, to ensure that they can offer good value propositions to the partner’s database also. The bank said it has over 20 initiatives that will come to the market in the next 6-9 months, which include co-branded cards with corporate India spanning pharma, travel, FMCG, hospitality, telecom, and fintech. The bank has also revamped its existing range of cards over the past 9 months and is also ready with strategic partnerships with new companies.

The open market customer acquisition pre-embargo was less than 20 per cent for the bank. With the increase in alliances and partnerships, that share may go up to 22-24 per cent. But, the bank’s strategy will continue to issue cards to the bank’s own customers.

“We see no reason to dilute our credit standards. We will, obviously, adopt our conservative approach to credit. We are not diluting the standards but we will adopt more digital methods to underwrite. Therefore, I do not see any significant stress in the portfolio, notwithstanding the growth ambition,” Rao said.

“Because of the embargo on Mastercard and Diner’s club, what’s left is Visa and RuPay. So, a large portion of the new sourcing, at least in the immediate future, will happen on the Visa and RuPay platforms. We are in touch with Mastercard and they are closely interacting with the regulator to address the issues,” Rao added.  

Last week, the RBI lifted the ban on HDFC Bank's issuance of new credit cards, after eight months of imposing it. However, the restrictions on new launches on the digital front still continue.

"The lifting of the embargo is a positive step, which is a testament to the fact that the RBI has taken into account the changes that the bank has implemented. And, now we are waiting for the regulator to give us some intimation on the digital initiatives also," Rao said.

The bank has been making a lot of changes to its technology infrastructure after the outages it faced over the years. The bank is making large-scale investments in technology infrastructure, wherein it is bringing new talent, getting into cloud-native stacks--a shift from the traditional monolithic IT infrastructures--and working with strategic partners for better products and services.

The bank management has made it clear that it will do whatever it takes to ramp up its technology infrastructure. The benchmarks are constantly shifting on IT spends and the bank is aware that some of its benchmarks will become global. The management had said in the past that it was modernising the existing bank and also created a vertical within the bank called an "enterprise factory". And, it has created another vertical called the "digital factory", housed with resources focused on building a digital platform for the bank.

In a letter to the employees last week, Sashidhar Jagdishan, managing director and chief executive officer of HDFC Bank, had written, “We will not just ‘run the bank’ but also ‘build the bank’ as we go ahead, riding on digital and enterprise factories with infrastructure scalability, disaster recovery resilience, enhanced monitoring capabilities, and security enhancements as the key pillars.”