How ICICI Lost the Credit Card Market & Gain of HDFC.

ICICI Bank under K V Kamath was one of the most aggressive banks when it came to adopting Technology and led the way for other Indian banks to modernize. However, one of the strategies of ICICI to aggressively resort to unsecured lending backfired. Since 2007, ICICI Bank has been withdrawing from the retail credit market, especially from the unsecured retail segments of personal loans and credit cards. A number of private banks and NBFCs along with SBI have gained market share during the last five years at the expense of ICICI Bank.

ICICI’s unsecured portfolio has continued to shrink and is now only a shadow of what it was in FY07. Both personal loans and credit cards have continued to decline in FY12 by 58% and 9% respectively. We have not seen any intention
from the management to restart growing the unsecured portfolio in spite of its distribution, credit infrastructure and capabilities. The following chart shows how ICICI Bank has seen negative growth in Credit Cards and Personal Loans in the last 5 years.

However, a different corporate mantra was being chanted in ICICI’s nearest competitor – HDFC. HDFC bank has established itself as market leader in several sub-segments in retail credit, such as credit cards, auto loans, personal loans etc. Over the past five years, it has created significant pricing and non-pricing competitive barriers in individual product segments. Unsecured products (personal loans + credit cards) form 24% of HDFC Bank’s retail portfolio while they constitute only 4% for ICICI. The following Pie-charts show the comparison of ICICI Vs HDFC Retail Credit Cards and Personal Loan Portfolio.
Source: Annual Report Filings of both the companies.

HDFC Bank has grown its retail portfolio at a CAGR of 28.5%. In certain unsecured products like credit cards and personal loans, HDFC Bank enjoys a market share as high as 33% – 50%. The high market share, along with the high yields that HDFC bank enjoys, is indicative of the low competition in the retail unsecured market. Given that the industry has not seen any slowdown in demand but is primarily constrained by supply side factors, we believe there is space for another large competitor.

In our previous research note, we have compared the average APR / Interest Rates charged on various Loan Products of ICICI, HDFC, Axis and IndusInd Bank from which we easily infer banks enjoy significantly higher yields on unsecured products such as credit cards and personal loans and based on our analysis of the competition and margins in these segments. We can also , we conclude that the profitability of home loans and auto loans is low, while the RoEs of personal loans and credit cards is substantially higher.

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