Recently, the Reserve Bank of India (RBI) has removed the bank on HDFC Bank which was issued on the bank for issuing credit cards earlier. So, How this news and this development in the Credit Card Industry will affect the SBI Cards Stock. Let’s know more about this in detail in this article.
Introduction:
On 17th August 2021, the Reserve Bank of India partially lifted the ban on HDFC Bank which was imposed on the bank for issuing new credit cards. Let’s learn more about this news and how this will impact the second-biggest player in the credit card sector-SBI Cards in this article.
HDFC Bank- Back in Game:
- In December 2020, the Central Bank of India- RBI issued came up with an action against HDFC Bank and implemented a ban for issuing new credit cards. It was done on account of repeated instances of technical outages at the lender.
- This posting up of a ban on HDFC Bank in connection with the ban on issuance of cards directly benefited the 2 entities- SBI Cards and ICICI Bank.
- During this ban period, HDFC Bank loses a market share of around 1.84% in the Credit card segment.
- This loss in market share has rewarded the 2 rivals- SBI Cards and ICICI Bank to gain a market share of 0.37% and 1.3% respectively. While the left out market share which was lost off by HDFC Bank has been gained by other players in the market.
- As of now, HDFC Bank is currently having a market share of around 24% and is still the largest player in the Credit Card sector despite facing a ban for so long period.
- The other 2 big competitors of HDFC Bank in the industry are SBI Cards and ICICI Bank with a market share of 19.2% and 17.4% respectively.
Impact on SBI Cards:
- This news of the lifting of the ban on the biggest player in the Credit Card Industry will have a short-term impact on the Stock Price of SBI Cards due to news-driven action. But for a longer horizon point of time, the all thing is about Earning Potential of the Company.
- The Visibility of Earnings and Growth in Earnings which is available in the company as well as the sector itself is quite huge for the coming 10-15 years.
- This statement can be supported by the stats of how much the credit card sector in India is underpenetrated. For Ex. In the United States of America, there is the issuance of 300 credit cards for every 100 person which accounts for 3 cards for 1 person. On the other hand, In India, these stats stand at only 3 cards per 100 persons.
- These stats show that how much the credit card is highly underpenetrated.
- Apart from this fact, SBI Cards is also having a strong parentage company i.e., State Bank of India (SBI), the biggest bank of India.
- Another Opportunity for SBI Cards is the focus of the India Government towards decreasing the number of Public Sector Banks in the country. The possible way to do this mergers and acquisitions. And hence, SBI could acquire some other PSU Bank and by which, SBI Cards could be indirectly benefited.
Conclusion:
During this ban period of HDFC Bank, has not issued any new credit cards but has made a good amount of customer’s pipeline for issuance of new credit cards which can now be fulfilled. Also, another big player in the market- SBI Cards with strong parentage and good sourcing power can work well in the coming period in this sector. The availability of organic growth, strong domestic consumption, and young demographic situations is a very good sign for SBI Cards. Hence, SBI Card is one of the stocks which a long-term investor should keep on the radar. Do follow due diligence before making any stock investment decision.
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