HDFC Bank may rally 32% on festive boost: Analysts

ICICI gained the most since ban on HDFC Bank

The Reserve Bank of India’s (RBI’S) decision to lift the ban on issue of new credit cards may trigger up to 32 per cent rally in HDFC Bank’s stock, analysts believe, as this comes just ahead of the festive season and presents an opportunity to capture market share.

The scrip surged 3 per cent to ~1,564.75 on the BSE intraday on Wednesday, but it closed with a marginal decline of 0.1 per cent at 1,512.9. In comparison, the S&P BSE Sensex closed with a 0.3 per cent decline at 55,629.49.

Analysts at Macquarie feel the lender can regain 180 basis points (bps) of market share or even more, as there is a large customer base to which it can cross sell.

“The RBI has lifted the ban ahead of the festive season, starting September, and we may see the bank rolling out attractive credit card schemes with full force,” they said in a report.

The ban hit HDFC Bank hard as its card base fell from 15.38 million in December 2020 to 14.82 million in June.

It is by far the largest credit card issuer in the country, and remains so even after the ban. The ban resulted in the lender losing market share in a rapidly growing arena while ICICI Bank, SBI Cards, and Axis Bank almost added 1.3 million, 0.75 million, and 0.3 million new cards, respectively, over the period. This translates to market share gains of 49 per cent and 28 per cent for ICICI Bank and SBI Cards, respectively.

HDFC Bank said in an exchange filing on Wednesday said the restrictions on all new launches of the digital business planned under Digital 2.0 will continue till further review by the RBI. “We will continue to engage with the RBI and ensure compliance on all parameters,” HDFC Bank said.

Analysts at Motilal Oswal Financial Services add that the RBI’S move addresses the key overhang as HDFC Bank is the largest credit card issuer and the segment is the key to bank’s overall profitability.

“During recent quarters, the bank has reported moderation in fee income/net interest income, affected by the RBI’S restriction on credit cards sourcing as this segment contributes roughly 25-33 per cent of the total fee income for the bank,” they said.

However, one school of thought suggests the partial lifting of the ban is only “partially positive” as the RBI’S “reluctance to give a complete waiver is a negative”.

Analysts at Jpmorgan say HDFC Bank will have to materially raise technology spends to charge ahead.

Given this, Siddharth Purohit, equity analyst at SMC Global says the up move in the stock may be slow relative to peers.

“That said, this has removed a big hangover and will be appreciated by investors. While the move will be slow and will happen gradually, investors can start buying the stock now,” he says.

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