Success stories of leading credit card issuers in india

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Success Stories of Leading Credit Card Issuers in India November 2013

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Agenda •

Credit Card Market Overview

Strategies Adopted by Category of Issuer •

Private Banks

Public Banks

Foreign Banks

Case Study – SBI Card (Public Sector Leader)

Case Study – HDFC Credit Cards (Private Sector Leader)

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Agenda •

Credit Card Market Overview

Strategies Adopted by Category of Issuer •

Private Banks

Public Banks

Foreign Banks

Case Study – SBI Card (Public Sector Leader)

Case Study – HDFC Credit Cards (Private Sector Leader)

© 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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With about an 18% share, PSU banks have the smallest pie of the credit card market. Performance wise too, they lag private and foreign peers Market Share by Credit Cards Issued

17%

25%

55% Public

Total: 17.7 Mn

18%

57% Private

Foreign

Total: 19.6 Mn

Number of Credit Card Transactions* (FY 2013)

Foreign Banks 36%

Cards in Mn

28%

FY 2013

40 35 30 25 20 15 10 5 0

3,573.6

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

3,116.7

3,063.5 2,264.8

19.6 11.1 3.5

5.0

Public Sector Private Sector Foreign Banks Banks Banks

Overall

Amount per Transaction (INR)

FY 2012

Cards Issued vs. Amount Transacted per Transaction

Amount of Credit Card Transactions* (FY 2013) Public Sector Banks 12%

Public Sector Banks 16%

Foreign Banks 41% Private Sector Banks 47%

Private Sector Banks 48%

Total no of Transactions at (ATM + POS): 399.2 Mn

Amount of Transactions at (ATM + POS): INR 1244.3 Bn

Source: RBI; Sutherland Research

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* ATM and POS

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Agenda •

Credit Card Market Overview

Strategies Adopted by Category of Issuer •

Private Banks

Public Banks

Foreign Banks

Case Study – SBI Card (Public Sector Leader)

Case Study – HDFC Credit Cards (Private Sector Leader)

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HDFC Bank continues to focus on the existing customer base HDFC Bank Continued focus on the existing customer base • HDFC Bank continued to focus on its internal customers to grow its credit cards portfolio. In FY 2012-13, around 75% of new cards were issued to internal customers only Developing new strategic partnerships • HDFC Bank continued to develop new strategic partners to grow business by offering customers various deals and offers • During FY 2012-13, HDFC Bank launched two variants of co-brand card, viz ‘JetPrivilege-HDFC Bank Credit Card’, an exclusive range of credit cards offering unique benefits and rewards in the form of air miles in partnership with Jet Airways, and ‘Times Card’, an exclusive, co-branded credit card which provides customers the widest range of discounts and deals on dining, movies and shopping in partnership with the Times of India Group Increased presence in the merchant acquiring business • As part of HDFC Bank’s strategy to drive usage of its credit cards, the bank has improved its presence in the ‘merchant acquiring’ business with the total number of point-of-sale (POS) terminals installed at over 240,000 Improved focus on customer service • For the year ended March 31, 2013, the credit cards segment accounted for 12.99% of the total complaints (a reduction from 14.90% for the previous year). Moreover, the number of BO complaints (credit cards related) per 1,000 cards was at 0.06 for the bank as against the industry average of 0.17

Source: Sutherland Research

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HDFC Bank continues to target exclusive customer segments HDFC Bank (cont’d) Continued focus to target specific customer segments • In FY 2012-13, the bank rolled out credit cards, especially for doctors, to cater to medical fraternity's specific needs, as part of its plans to launch total one million credit cards in the fiscal to deepen its presence in the credit card space. The credit cards were specially designed to cater to the lifestyle, travel and other needs of doctors

“…The doctors with new exclusive range of credit cards members will be able to access more than 600 airports lounges around the world, irrespective of preferred airlines or class and they will also benefit from the reward point redemption across all major airlines in India...” – Parag Rao, Business Head, HDFC Bank

Source: Sutherland Research

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ICICI Bank is back again with aggressive plans ICICI Bank Aggressive plans for the credit card division for FY 2014 • In March 2014, ICICI Bank again started to expand its credit card base after a gap of almost four years. For FY 2014, the bank plans to add 500,000 credit cards to its existing portfolio of three million • ICICI Bank, once the most aggressive credit card issuer, became cautious on this business since the 2008-09 financial crisis, due to a high delinquency rate “…Our delinquency rate is now among the lowest. We have increased our new acquisitions and plan to add close to half a million cards this year. But we are more interested in increasing the number of our active cards…” – Rajiv Sabharwal, Executive Director, ICICI Bank

Continued focus on the existing customer base • ICICI Bank will continue with its strategy of offering new cards, primarily to customers who already have a banking relationship with ICICI • ICICI Bank’s credit card portfolio is estimated at INR 3,000 crore and is growing at 20% annually Credit card as part of rural banking strategy • One of the key portfolios of ICICI Bank’s rural banking strategy includes providing a range of asset products like kisan credit cards to help farmers in purchase of cattle and irrigation equipment

Source: Sutherland Research

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ICICI Bank continues to focus on security ICICI Bank (cont’d) Continued innovation to provide secured payment environment • In September 2013, ICICI Bank introduced a new credit card, with a keypad and alpha-numeric LCD screen, to provide better security for online transactions. The new card, Carbon, has been developed in partnership with Visa. ICICI Bank Carbon is Asia’s first credit card powered by Visa CodeSure, which along with the EMV chip technology makes the card one of the safest for any usage, especially for online shopping

“…This is a crucial step towards further securing electronic or card-not-present transactions – a dynamic passcode through an integrated screen on the card…” – Uttam Nayak, Group Country Manager – India and South Asia, Visa

No more lifetime free credit cards • In 2011, ICICI Bank withdrew its lifetime free credit cards scheme, signaling a change in business strategy for credit card. The decision came in the wake of the global credit crisis in 2008-09, where most banks began shrinking their credit card portfolio as many customers started defaulting on payments

Source: Sutherland Research

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Agenda •

Credit Card Market Overview

Strategies Adopted by Category of Issuer •

Private Banks

Public Banks

Foreign Banks

Case Study – SBI Card (Public Sector Leader)

Case Study – HDFC Credit Cards (Private Sector Leader)

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SBI Card is targeting HNI customers SBI Card Focus on adding customers with better risk profile • SBI Card is continuously focused on acquiring customers through the existing customer base of SBI branches across the nation. Acquiring customers through SBI branches helps the company adjudge the customer far better than the process involved by SBI Card • It helps the company develop a better understanding of customers’ preferences as well as plan the right product mix and customer value proposition to suit specific customer segments

“…We expect the number of customers coming to us through SBI branches to double in the next year. By sourcing from the SBI branches, we are able to effectively use the unparalleled distribution network of the SBI at lower cost and the back-office process expertise of GE Capital, which is one of the largest private label card issuers in the world…” – Abhay Kumar Singh, CEO, SBI Card

Growing in the high net-worth, high spending and more profitable customer segment • SBI Card has plans to increase its customer base in this category from the less than 5% in 2010 to over 20% in four years (by 2014). The launch of SBI Platinum Card, for a high-spending “premium segment”, in November 2010 was one of the significant steps in that direction Continuous focus on increasing customer spend • SBI Card always carried a strategic viewpoint of increasing customer spend through better value proposition to the customer. The company always keeps on introducing several new value features on existing products and along with various new product launches. Moreover, the company also keeps on revamping its rewards and loyalty programs

Source: Sutherland Research

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SBI Card has simplified the application process SBI Card (cont’d) Innovative plans to add new customers • In March 2012, SBI Card launched an innovative initiative of customer referral program named as “Link”. The idea behind such initiative was to provide a compelling platform for existing SBI Card customers and invite them to refer their friends thereby becoming a SBI Card Link • Existing customers stand a chance to win exciting rewards and gifts by Linking friends to SBI Card. Each successful Link will also stand to win exciting cash prizes and gifts Simplification of the application process • In an another initiative, SBI Card launched a campaign called as “No Income Documents”, which was aimed at making life simple for existing mortgage and auto loan customers of banks as it eliminates the need of providing income documents at the time of applying for a new card • The customer has to simply sign a declaration and provide the KYC (Know Your Customer) documents for enrollment. The customer does not need to provide any kind of income documents to acquire the SBI Card “…It has been our constant endeavor to establish innovative channels to connect with our existing as well as potential customers. We are confident that these two programs will help us reach out to more customers...” – Kadambi Narahari, CEO, SBI Cards & Payment Services Private Limited Growing strategic partners • One of the other focuses of SBI Card is to keep growing the strategic partners across all industries or channels to give better services to its customers • SBI Card has series of strategic partners within the banking scope. The company has launched various co-branded cards for customers of other banks to grow its business. Some of these include Bank of Maharashtra, Dena Bank, UBI, Karur Vysya Bank and Oriental Bank of Commerce • Apart from above, SBI also has strategic travel partnerships in terms of co-branded card with Indian Railways, Air India, Spice Jet and Yatra.com Source: Sutherland Research

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Agenda •

Credit Card Market Overview

Strategies Adopted by Category of Issuer •

Private Banks

Public Banks

Foreign Banks

Case Study – SBI Card (Public Sector Leader)

Case Study – HDFC Credit Cards (Private Sector Leader)

© 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Citibank targets new customer segments Citibank Target new customer segments • In 2012, Citibank laid a strategy to expand its Indian consumer banking operations by ramping up its credit card business and adding one million new customers from the urban middle class over the next two-three years • The strategy came into picture along with several other foreign lenders, who all were burned by bad debt not too long ago as the global economic crisis led many customers to default on credit card and personal loan payments

"…Though there are uncertainties, the trends are pointing toward potential opportunities, and we are focused on the right target segments…” – Anand Selvakesari, Head, Citibank India Consumer Banking

Focused on growing strategic partnerships • In May 2012, Citibank India reaffirmed its strategy to be a leader in the cards segment by strengthening its offerings with the launch of India's first airline agnostic card, Citibank PremierMiles Credit Card • Citibank mutually agreed to exit its co-branded card partnership with Jet Airways to introduce a more advanced Citibank PremierMiles Credit Card • This came as a result of changing preferences and behavior of consumers in India. For instance, the number of air travelers has seen strong growth in the past 12 years due to greater affordability and affluence among the emerging affluent class. Air travel itself has become extremely fragmented among the domestic airlines

Source: Sutherland Research

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Citibank emphasizes on social media strategy Citibank (cont’d) Social Media strategy • Recently, Citibank has started using social media as a platform to promote its various offerings, services, and activities the bank is engaged in • The bank throws occasional contests, trivia, and quizzes (but mostly they are Citibank-centric) to engage the existing customers. The bank has carried its egocentricity from the traditional media to social media including Facebook and Twitter

Source: Sutherland Research

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Standard Chartered strengthens its digital strategy Standard Chartered Strengthening the digital strategy • In June 2012, Standard Chartered Bank, India's largest international bank, strengthened its digital strategy by launching India’s first instant online Credit Card approval solution • This digital solution enables a customer to apply for a card online and receive an ‘Approval In Principle’ (AIP) almost instantly “…The online Credit Card AIP is poised to revolutionize customer experience with its instant feedback feature. Digital solutions are the future of banking and Standard Chartered is leading the way in making digital channels an important and integral part of the way customers bank…” – Sanjeeb Chaudhuri, Regional Head, South Asia & CMO, Consumer Banking, Standard Chartered Bank

M&A strategy • In December 2011, Standard Chartered Bank announced its plans to acquire over half of Barclays Bank's credit card portfolio in India. Standard Chartered Bank bought the portfolio at a hefty discount to the book value. The book value of the portfolio, which was sold, was estimated at INR 180-200 crore • Standard Chartered Bank added around 170,000 cards to its existing portfolio of 1.1 million cards at that point of time. This helped the bank to stay in the competition with key players like HDFC Bank, ICICI Bank, Citibank and SBI Card in the Indian credit card market Growing strategic partners • One of the other focuses of Standard Chartered Bank’s credit card business is to keep growing the strategic partners across all industries or channels to give better services to its customers • Standard Chartered Bank has made strategic partners in terms of co-branded card with various merchants including Yatra.com, Emirates, Bajaj Finserv and Lifestyle

Source: Sutherland Research

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Agenda •

Credit Card Market Overview

Strategies Adopted by Category of Issuer •

Private Banks

Public Banks

Foreign Banks

Case Study – SBI Card (Public Sector Leader)

Case Study – HDFC Credit Cards (Private Sector Leader)

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SBI Card: A SBI-GE Joint Venture

SBI Card Overview

• SBI Card, founded in 1998, is a joint venture between State Bank of India and GE Capital to offer credit cards to customers in India – The partnership is operated through two joint venture companies – SBI Cards & Payment Services Pvt. Ltd., which focuses on the marketing and distribution of SBI Card and GE Capital Business Processes Management Services Pvt. Ltd., which handles the technology and processing needs of SBI Card

• SBI Card operates through a footprint of 22 cities in India and currently (as per SBI Card website) has a customer base of over 2.1 Mn • Apart from its own credit cards, SBI Card also issues co-branded cards with other public sector banks including Bank of Maharashtra, Dena Bank, UBI, Karur Vysya Bank and Oriental Bank of Commerce • As on September 30, 2012, SBICPSL’s 30 days’ overdue percentage was 4.73% (INR 124 crore). For December 31, 2011, the same was 5.26% (INR 105 crore). This indicates improvement in the asset quality – The improvement in asset quality indicators is on account of various initiatives taken by SBI to improve the quality of originations as well as recovery from delinquent accounts

Financial Performance

– These initiatives included tightening of credit underwriting norms, increasing focus on SBI customers (where customer credit history is known), and focusing on higher income customers besides making CIBIL positive reports mandatory for fresh sourcing and improving processes for monitoring and recovery • For the year ended March 31, 2013, the company reported a net profit of INR 136.3 crore, a year-on-year growth of 258% over a net profit of INR 37.9 crore for 2011-12. For the six months ended September 30, 2012, SBICPSL reported a Profit after Tax of INR 38.2 crore. SBICPSL reported capital adequacy ratio of 17.53% (Tier I% of 11.60%) as on September 30, 2012 (capital adequacy of 18.82% as on March 31, 2012)

Source: ICRA; Sutherland Research

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SBI-GE JV operates through two business units SBI Card: Organization Chart Marketing & Distribution

Credit Card Operation (SBI-GE Joint Venture)

Organization Structure Technology & Processing

SBICPSL

GEBPMSL

Pallav Mohapatra (CEO)

Sanjeev Jain (CEO)

SBI (60%)

GE (40%)

SBI (40%)

In SBI Cards and Payment Services Ltd. (SBICPSL), SBI holds a 60% stake and GE Capital holds the remaining 40%. While in GE Capital Business Processes Management Services (GEBPMSL), GE Consumer (Mauritius) Investment I Ltd. holds the majority 60% stake and SBI holds the rest 40%

Based on the inherent strengths of the individual companies, majority stakes were decided – State Bank brought brand equity and distribution network to the table and hence was a majority stake holder in the distribution company – GE Capital, on the other hand, has a lion’s share in the processing company due to its better understanding of systems and technology required in the credit card business

GE (60%)

Role of GE and SBI •

Credit card business is highly technology driven. It needs strong back-office operations and also installation of electronic data capture machines in high sale points for instantaneous transfer of credits and debits – GE Capital has the capability to supply and set up these systems. GE allows SBICPSL to use its superior skills, systems and processes to exploit SBI’s franchise

State Bank of India, on the other hand, has a strong branch network and a very large depositor base – The marketing and distribution company (SBICPSL) has ready access to substantial number of SBI depositors as its credit card customers. Since SBI has the profile of its depositor’s credit, evaluation for the purpose of issuing credit cards will not be a problem

Source: Sutherland Research

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SBI-GE JV has been a success story for the last 15 years Timeline: SBI Card • GE Capital & SBI signed a MoU to form a JV to enter into the credit card business

• Peak credit card customer base of 3.3 Mn cards

SBI Card-GE Capital expand their alliance beyond the credit card business to offer personal loans & credit insurance through the JV

SBI Card set a target to add one million new customers by 2014-15 to its existing customer base of 2.1 Mn Customer Base 2.6Mn

1997-98

2006-07

2008-09

2008-09

• SBI Card became the second largest credit card company in India after ICICI

2008-09

• SBI credit card business reports loss of INR 150 crore

Customer Base 2.5Mn

2010-11

2012-13

SBI Card turns profitable. Became the only standalone card company in the country to register profit

Customer Base 2.7Mn

Customer Base 2.3Mn

SBI Card CEOs

1

2 Iqbal Singh (Till 2003)

Roopam Asthana (2004-08)

3

4 Diwakar Gupta (2008-09)

5 Abhay Kumar Singh (2010)

Kadambari Narahari (2011-12)

6 Pallav Mohapatra (2012-Till Date)

Source: RBI; Sutherland Research

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SBI Card turns profitable post recession Number of Outstanding SBI Credit Cards

Commentary

4.0 Cards Issued (Mn)

3.10 2.72

3.0

2.66 2.30

2.57 2.20

2.0 1.0 0.0 2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

SBICPSL Profit/Loss Trend Profit/Loss (INR Crore)

250 136.3

150 7.1

50

37.9

-50

-185.1

At its peak in early 2008, SBI Card added customers between 70,000 and one lakh each month, which totaled to 3.1 Mn for the year. But the high growth resulted in losses from 2008 to 2010

• Greater reliance on verification reports of CIBIL (Credit information Bureau) and reducing cash withdrawal limits as well as credit periods and increasing penal fees were among the steps taken by the bank to limit losses • Credit card business (run as a joint venture with GE Capital) showed a profit of INR 7.10 crore in FY 2011, the turnaround year, compared to losses of Rs 153 crore in FY 2010 and Rs 185 crore in FY 2009 • For FY 2013, the company reported a massive growth in net profit to reach INR 136.3 crore over a net profit of INR 37.9 crore for FY 2012

-150 -250

• SBI Card started its operations in FY 1999, made its first net profit in FY 2003, and continued to do so until FY 2007 when it recorded a profit of INR 58.76 crore

-152.4

-230.0

-350 2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

Source: RBI; Sutherland Research

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Agenda •

Credit Card Market Overview

Strategies Adopted by Category of Issuer •

Private Banks

Public Banks

Foreign Banks

Case Study – SBI Card (Public Sector Leader)

Case Study – HDFC Credit Cards (Private Sector Leader)

© 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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HDFC Bank issued ~75% of the new credit cards to existing customers during FY 2012 HDFC Bank Credit Card Overview • Founded: December 2001 • Card Base: 6.55 Mn (as on March 31, 2013) • Top Competitors: ICICI Bank, SBI Card, Citibank • Key Strategic Partners: Jet Airways, Times of India Group

HDFC Bank Credit Card Portfolio •

Since inception of its credit card business (December 2001), HDFC Bank insisted and continued its focus on internal customers for its credit cards portfolio growth. Till the last reporting (as of March 31, 2013), i.e. in FY 2013, of the new credit cards issued by the bank around 75% were to the existing customers –

FY 2010 – Over 70% of the new credit cards issued to internal customers during the year

FY 2011 – Over 70% of the new credit cards issued to internal customers during the year

FY 2012 – Around 70% of the new credit cards issued to internal customers during the year (a new milestone was achieved when HDFC Bank emerged as the largest issuer of credit cards in India)

FY 2013 – Around 75% of the new credit cards issued to internal customers during the year

Source: Annual Reports; Company Presentations

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Over the last three years, HDFC Bank credit card base grew by 63.8% as compared to 8.6% for overall credit card base in India Total Credit Card Base (Mn) 26.7%

31.6%

29.0%

34.1%

33.5%

19.0%

-9.1% 27.5

-28.0%

17.3

6.0

FY 02

7.6

FY 03

FY 04

0%

8.6%

25.0

23.1

10.0

0%

18.0

18.0

18.0

FY 10

FY 11

FY 12

19.6

12.9

FY 05

FY 06

FY 07

FY 08

FY 09

FY 13

HDFC Credit Card Base (Mn) 194.4%

137.7%

58.7%

45.0%

31.0%

13.2%

-7.0%

25.0%

12.0%

17.0% 6.6

5.0

Launched in Dec 2001

3.8

4.3

4.0

FY 09

FY 10

5.6

2.9 2.0 1.3 0.2

FY 02

FY 03

0.5 FY 04

FY 05

FY 06

FY 07

FY 08

FY 11

FY 12

FY 13

Source: Annual Reports; Company Presentations

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Over the last two years, transaction amounts have grown at a CAGR of 36.8% HDFC Bank Credit Card Transaction Amounts (INR Bn) 7.3%

13.8%

57.5

61.7

Q1 FY '12

Q2 FY '12

5.2%

6.8%

6.4%

16.4%

73.9

78.9

83.9

70.3

Q3 FY '12

Q4 FY '12

Q1 FY '13

Q2 FY '13

HDFC Bank Credit Card Receivables (INR Bn)

0.1%

10.1%

97.7

97.8

Q3 FY '13

Q4 FY '13

107.7

Q1 FY '14

Commentary • Transaction amounts have grown by 36.8% (CAGR) over the last two year, whereas the credit card base for the last two years grew by 14.9% annually. This signifies that the transaction value per card has grown over the period

120 100 80 60

• The average transaction amount (ATM+POS) per card per month on HDFC Bank credit card has increased from INR 3,560 in April 2011 to INR 5,724 in June 2013; an increase of 60.8% over the period

40 20 0 FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

Source: RBI, Annual Reports; Company Presentations

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Thank You

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