HDFC Bank gains as RBI lifts ban on issuing credit cards; should you buy?

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Shares of HDFC Bank gained over 2% in Wednesday’s early trade after the Reserve Bank of India (RBI) on Tuesday lifted an eight-month ban on the private sector lender from issuing new credit cards. The scrip traded 2.44% higher at Rs 1551.75 at around 9.27 am. On the other hand, the benchmark BSE Sensex was up 262 points, or 0.47%, at 56,054.

However, the ban on launching new technology initiatives remains intact. In December last year, the RBI had come out with an unprecedented action implementing both the bans, after repeated instances of technological outages at the lender, which is the market leader in the credit cards segment. Rivals ICICI Bank and SBI Cards seized the opportunity to narrow the gap with HDFC Bank.

The bank’s existing users were not impacted by the ban and it had 1.48 crore credit card customers as of June.

On July 17, the bank’s chief executive and managing director Sashidhar Jagdishan had said it has complied with 85% of the RBI’s requirements on the improvements desired, and the ball is now in the regulator’s court to re-allow the bank.

Earlier, its technology and credit card vertical had said the time off the market has been utilised to re-draw processes and the teams are raring to go.

Jagdishan had said a technology audit is also over and the RBI will now be “independently” taking a view on when to lift the penal actions taken against the bank.

The action against HDFC Bank has been followed with a ban on card companies Mastercard and American Express from selling any new cards because of a failure to adhere to data localisation rules.

Should you buy HDFC Bank?

Global brokerage firm JP Morgan retained a bullish view on HDFC Bank with a target price of Rs 1,800. “It’s partial positive as the credit card is one of the most profitable pieces of bank’s business,” it said adding the lender needs to raise technology spends materially.

Macquarie maintained ‘Outperform’ on HDFC Bank with a target price of Rs 2005. “Ban has been lifted before the festive season which starts from September. We strongly believe this is the best franchise to own in the financial space,” it added. The global financial firm further added that the market share loss to be regained. Overall, HDFC Bank has lost 180 basis points of market share in credit cards as of May 2021 since the end of November 2020. “There is a large customer base to which they can cross sell,” Macquarie said.