Newer categories of card spend emerged amid Covid: HDFC Bank's Parag Rao

HDFC Bank executive shares insights on how the lender intends to increase its credit card market share post embargo

HDFC Bank, which commands one fourth of the credit card market in terms of volume and one third in terms of value, has started acquiring new customers after the Reserve Bank of India lifted ban on customer on-boarding in August. Parag Rao,  group head, payments, consumer finance, digital banking and IT, HDFC Bank, shares insight on how the bank is planning to overcome challenges, which prompted the regulatory restrictions and the strategy to regain market share that was lost during the embargo period, in an interaction with Manojit Saha. Edited excerpts:

What is the strategy to increase the credit card market share?

There are four strategies that we have created to get back with a bang. One is relooking and relaunching our existing range of products so that our existing 15 million customers start seeing increasing value. Credit card business is not about issuing numbers [cards]. That is just the starting point of the journey. It is important to have a robust, strong and resilient portfolio to get customers to spend. Portfolio management is a very important part of the card business strategy.

The second pillar of our strategy is that we like to launch brands in some of the segments where we are not very strong or some segments which we believe will grow ahead of others. One of them would be the ultra-premium segment which may as a percentage appear small but from a spend perspective it is large. It is also a brand driver.

The third is having strategic partners and alliances. We have announced one such with Paytm. There will be more announcements, some of them are in the last stages of closure. There is a significant headroom to grow in the credit card space, it is still underpenetrated. Even if we are market leaders, we can do every business development activity of our own, it is important to look at strategic partnerships and alliances.

The fourth pillar is to enhance customer experience, relook our user journeys, digitize them. Earlier it may require five stages to complete a transaction, can you do it in two stages now? Can you make information available on a do it basis, etc. So fundamentally improving the customer experience by using a lot of digital techniques and methods.

These four strategies are going to be the bedrock of our growth in the future.

How will these four strategies translate into improving market share of card spend?

Over the next three to four quarters we would like to get back our market share we would have lost in the last nine months when we did not issue any cards. We were able to hold our value market share, one third of the market roughly, and using these four strategies we would like to enhance that share. We want to see that HDFC Bank is the preferred card or the only card which a customer wants to pull out when he thinks of a transaction.

Within a month after the restrictions were lifted, HDFC Bank have issued 4 lakh cards. What will be the per month run-rate of issuing new cards that you are looking at?

Our highest ever card issuance per month was 3 lakh, before the embargo which we have surpassed now. The next milestone will be doing half a million cards per month. It is important to choose the right customers from the credit and risk perspective. In all these ramp up of numbers, I must emphasise there has been no dilution in our credit norms, always been prudent and conservative in credit underwriting standards.

When do you expect the ban on the launch of Digital 2.0 initiative will be lifted?

I will not be able to crystal ball gaze into it. We are deeply engaged with the regulator. They had pointed us to the areas which they would like to see us improve on in-terms of processes and infrastructure etc. Happy to say we were able to fulfill all the requirements which were laid down. We have explained not just what we have done in the last 8-9 months but also articulated our medium to long term strategy on how we are building ourselves and keeping us ready for the future. We submitted our plan, short term, medium term and long term. Now we await the regulator’s response to the second part of the embargo which is digital 2.0 and we are hopeful.

The RBI restrictions were imposed due to the repeated outages on the bank’s digital banking platforms which used to happen during the beginning of the month. the outages have not stopped, it still occurs…

Outages will continue to happen; I am not just talking about the bank but it is an industry phenomenon. If you see the statistics, even the largest of institutions have faced outages. What is important is not just the outages happening but the ability or the resilience of the banks or large infrastructure players to correct those and get back, so as to minimize the inconvenience faced by the customers.

Our strategy has been two pronged. One is to re-engineer and recalibrate our infrastructure, and modernise it so that you attempt to bring down the outages.

Is the recalibration of infrastructure over?

No…that is what we call the enterprise factor where we are transforming the organization. It is not a one-time event. It is a journey. Large organisations will take anywhere between 24-36 months. We are a very large organization. We are currently modernizing our existing systems. Also bringing new digital platforms and practices which will help us to become much more resilient. The bedrock of these changes is fundamentally to modernize our infrastructure. We don’t have the option of shutting down, wait and then build. We have to fly the plane, we have to fix the place and we have to improve the plane simultaneously. We will be ready for the challenges for the next 25 years.

Have you seen a fall in spend per card post the Covid-19 pandemic?

What we have seen very clearly is that some categories have dropped for obvious reasons like travel, airline and dining out. These are three categories which have got impacted. These together formed 20-22%of the spends, pre-embargo. We also saw some newer categories emerge during this period. Like grocery – which are small ticker high frequency items, a lot of utility payments are coming to cards. Secondly, online spending has expanded. There are newer categories within online spends like online courses, like Netflix and Hotstars of the world. The third big category which has emerged is what we call ‘work from home and work for home’ spends. Which means we will have quasi offices in our houses, so everyone needs a laptop, furniture, wifi connection etc. That demand continues to increase. These new categories have made up the loss in the earlier three categories I talked about. When the airline and travel etc picks up, I would expect that the spends in overall card will be far higher than the pre-embargo period.

Have you seen higher delinquencies post covid? Have you tightened underwriting norms?

Every asset product goes through every 2-3 years cycles. Tightly monitoring these economic cycles across all products is a standard practice in HDFC Bank. Covid was one of those milestones where some of the sectors faced stress. So tightening the portfolio, constantly recalibrating benchmarks in terms of underwriting, deeper monitoring payment and spend trends was a business as usual activity for the bank. It reflected in the great credit quality of our portfolio which we always consistently maintained over the years.

Have you transferred the Mastercard which has now been banned by RBI from issuing new cards, to Visa?

We believe the embargo on Mastercard is temporary. I am aware of the efforts which Mastercard is making in their interaction with the regulator to see that the embargo is lifted as soon as possible. We have almost 50:50 with Mastercard and Visa. We have faced no problems at the backend. For the temporary period we shifted issuances to the Visa. Once Mastercard is back we will get back to equilibrium.