HDFC Bank's Credit Rollover Problem Is Hurting Its Fee Income
Fee from credit cards fell for HDFC Bank in Q3 as customers turned cautious.
Even as monthly spends rise, customers are being cautious about their credit card usage or availing multiple financing and deferred payment options. That's impacting the fee income of credit card issuers.
While announcing HDFC Bank Ltd.'s October-December results, Chief Financial Officer Srinivasan Vaidyanathan said the lender's core fee income rose only 2% year-on-year to Rs 5,075 crore, mainly because of contraction in fees from payments products. Excluding these, fee income rose 17% year-on-year. Retail contributed 93%.
He attributed the drop in payments products income to fewer customers using their credit limit to the fullest. That means not enough cardholders rolling over their dues.
Credit card limit usage is around 0.7-0.8 times the trend before the onset of the Covid-19 pandemic in March 2020, Vaidyanathan said. "So the opportunity that we used to get from a late payment definitely doesn't come through," he told analysts. "Only 80% customers are now revolving their credit."
One reason for the decline in HDFC Bank's income from fees on payments products is that cardholders are sitting on more cash. According to Vaidyanathan, at an aggregate level, the total liabilities balance held by credit card customers was about four times their card balances before the pandemic. This has risen to five times, he told analysts.
"So we see customers are sitting on a good amount of deposits and liability balances," he said.
Another issue is the fee waiver HDFC Bank has been providing to its existing card customers. This were done during the festive period to increase customer engagement, the bank's CFO said.
The problem is not limited to HDFC Bank. In the 12 months through November 2021, the banking system has seen a slower growth in incremental credit card debt. That's when monthly spends have been rising.
According to the head of retail payments at a large private bank, who spoke to BloombergQuint on the condition of anonymity, cardholders have been using a limited portion of their credit limit as fears of a Covid-19 infection and inflated medical bills still persist.
Moreover, if customers use about 20-30% of their credit limit each month, they will be able to easily repay their dues in full without rolling over their balances, the first banker said.
Apart from this, many states are yet to fully reopen, with restrictions on cinemas, malls and restaurants still continuing. That has reduced spending avenues for card users.
According to Vijay Jasuja, former managing director and chief executive officer at SBI Cards and Payment Services Ltd., the rise of payments products like Buy-Now-Pay-Later have also affected credit card spends when it comes to large-value products.
"We can see that a lot of customers are preferring to use the deferred payment options, since they allow instalments without attracting any additional interest cost," Jasuja said. "However, this is still limited to a small group of credit card customers who avail such options."