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MOSL: HDFC BANK (Buy)-RBI lifts restriction for sourcing of new credit cards

HDFC BANK: RBI lifts restriction for sourcing of new credit cards

(HDFCB IN, Mkt Cap USD112.7b, CMP INR1515, TP INR1800, 19% Upside, Buy)

 

• , the Reserve Bank of India (RBI) have partially lifted the restrictions placed on HDFC Bank in Dec’20 and have allowed the bank to source new credit cards. However, the restrictions on new digital application launches will continue. The RBI move addresses the key overhang as HDFC Bank is the largest credit card issuer in the country and credit card segment is the key to bank’s overall profitability.
• During recent quarters the bank has reported moderation in fee income/NII, affected by RBI’s restriction on credit cards sourcing as this segment contributes ~25%-33% of the total fee income for the bank.
• HDFC Bank had nearly lost ~0.6m cards since the date of embargo. On the other hand, ICICIBC/SBICARD/AXSB almost added ~1.3m/~0.75m/~0.3m new cards over the similar period. Therefore, other players such as ICICIBC/ SBI Cards have sharply ramped up their incremental market share at ~49%/~28% during this period.
• Overall, lifting of RBI restrictions before the beginning of festive season is a positive development as HDFC Bank has usually been aggressive during festive season and offers various discounts on consumer products.
• Valuation and view: HDFC Bank has underperformed and has been range bound over 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 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. We maintain Buy rating with a TP of INR1,800 per share (3.5x FY23E ABV).