Pandemic-Related Stress On Unsecured Loan Assets Over: HDFC Bank

The country's largest private sector lender HDFC Bank on Wednesday said the elevated stress on unsecured loan assets noticed during the COVID-19 pandemic is over, and the bank is upbeat about the segment now. The unsecured lending book for the bank includes credit cards and personal loans. According to HDFC Bank's country head for consumer finance Parag Rao, the next two years present an interesting opportunity to grow in the segment, which is otherwise considered a bit risky. Acknowledging that his bank also witnessed some elevation in asset quality woes from the unsecured segment during the pandemic, Rao clarified that the same was never at worrying levels. "A large portion of the issues of the pandemic are gone," he said, adding that customers seeking loans now are relatively better from the risk perspective. Developments in the overall economy, where consumption is growing, make this a "good phase", and the bank looks at it as a good time to grow in this segment over the next 18-24 months.

Speaking at the launch of a co-branded credit card in association with retailer Shoppers Stop, Rao said the bank is targeting to increase the contribution of co-branded cards in its business over the medium term. In terms of spends, it is targeting to almost double the share from co-branded cards to up to 30 per cent in the next three years from the present 15 per cent. In terms of the number of cards, the share of co-branded cards is likely to go to over 35 per cent from the current 12 per cent, Rao said. He said the bank is in talks with a number of players for partnerships, which include a multi-portfolio conglomerate, a telecom player, and exclusively digital offerings with dining and local mobility player. At a time when the BNPL (Buy Now Pay Later) trend is growing, especially fuelled by the fintechs, Rao said the exclusively digital credit card offering would be like the same. He, however, said that BNPL's efficacy for the bank will be limited to acquiring new customers, and it cannot be a tool to build a book. Rao explained that a two-three month loan product like BNPL, which is driven by  consumers' impulsive buying behaviour, cannot be helpful in growing a book.

At present, the bank has 16 million credit cards, and is growing with the addition of around 5 lakh each month, Rao said, adding that it is on track to achieve its goals stated at the time of restarting credit card issuances after the RBI lifted its regulatory ban. He said it will take about 6-9 months for the numbers to reflect the gains it is making, and claimed that internal data available to him suggests that they are on the way to achieve the targets on market share by number of cards and spends. About the deal between Axis Bank and Citi, in which the third largest domestic lender is taking over the consumer business of the American lender, Rao opined that it will not change things much for the HDFC Bank. About the bank's partnership with Shoppers Stop, Rao said that his bank is targeting to sell 1 million cards in the next three years. The retailer has 9 million consumers who can be the prospective users of the co-branded credit cards. Launched in two variants, one of the cards comes with the annual charge of Rs 5,000, which also offers many freebies.

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