HDFC Bank gains 3% as RBI allows lender to issue new credit cards

Shares of HDFC Bank were up 3 per cent at Rs 1,564.75 on the BSE in intra-day trade on Wednesday after the Reserve Bank of India (RBI) on Tuesday allowed the private lender to issue new credit cards. However, RBI's ban on the bank introducing new digital initiatives will continue.

Despite today’s gain, in the past three months, the stock of HDFC Bank has underperformed the market by gaining 7.5 per cent, as compared to a 13 per cent rally in the S&P BSE Sensex. In the six months, the stock was down 2.5 per cent, against an 8.4 per cent gain in the benchmark index. It hit a record high of Rs 1,650 on February 24, 2021.

“The RBI vide its letter dated August 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,” HDFC Bank said in an exchange filing today.

The bank further said the restrictions on all new launches of the Digital Business generating activities planned under Digital 2.0 will continue till further review by RBI. We will continue to engage with RBI and ensure compliance on all parameters, HDFC Bank said.

Frustrated at repeated tech outages at HDFC Bank, the RBI took an unprecedented action against the lender in December 2020, putting a freeze on it issuing any new credit card, a segment in which it was a market leader, and also barring it from introducing any new digital offerings.

Allowing sourcing of new credit cards would help the bank to regain its lost market share in the credit cards segment while this would also add to overall business growth and performance, ICICI Securities said in a note.

The RBI's move addresses the key overhang as HDFC Bank is the largest credit card issuer in the country and the credit card segment is the key to the bank’s overall profitability, analysts at Motilal Oswal Securities said in a company update.

"HDFC Bank has underperformed and has been range-bound over the last couple of months owing to pressure on NII growth and margins. The lifting of these RBI restrictions thus addresses the key overhang. Further, we also expect growth trends to revive in retail especially in the unsecured lending segment in coming quarters. Overall, the bank continues to make additional contingent provisions to further strengthen its balance sheet against any potential COVID-19 impact and thus expects stress formation to remain under control," the brokerage firm said.

At 09:36 am, the stock was up 2 per cent at Rs 1,543 on the BSE, as compared to a 0.36 per cent rise in the S&P BSE Sensex. A combined 4.5 million equity shares had changed hands on the counter on the NSE and BSE.