Even though monthly expenses are increasing, customers are being cautious about using their credit card or using multiple financing and deferred payment options. This has an impact on the commission income of credit card issuers.
During the October-December earnings announcement of HDFC Bank Ltd., Chief Financial Officer Srinivasan Vaidyanathan said the lender’s base fee revenue grew only 2% year-on-year to 5,075 crore rupees, mainly due to the contraction of payment product fees. Excluding the latter, commission income increased by 17% year-on-year. Retail contributed 93%.
He attributed the decline in payment product revenue to fewer customers maxing out their credit limit. This means that there are not enough cardholders repaying their dues.
Credit card limit usage is around 0.7 to 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 is definitely not coming,” he told analysts. “Only 80% of customers now renew their credit.”
One of the reasons for HDFC Bank’s declining revenue from fees on payment products is that cardholders are sitting on more cash. According to Vaidyanathan, at an aggregate level, the total balance of liabilities held by credit card customers was around four times the balance on their cards before the pandemic. That has increased fivefold, he told analysts.
“So we see that customers are sitting on a fair amount of deposit and liability balances,” he said.
Another issue is the fee waiver that HDFC Bank offers to its existing card customers. This was done during the holiday season to increase customer engagement, the bank’s chief financial officer said.