Canara Bank to launch credit card subsidiary; announcement likely in 2-3 quarters: MD

Canara Bank is in the initial stages of discussion for launching a separate credit card subsidiary of the bank, the lender’s Managing Director and Chief Executive Officer LV Prabhakar told Moneycontrol on May 6.

“In the last two years, Canara Bank has grown its credit card portfolio well. We have about 923,000 credit cards, which is probably the second-highest amongst public sector banks. Activation has also increased and going forward, our aim is to have a subsidiary for credit cards and we are working in that direction,” he said.

“…We are doing reality checks also. How other companies have performed, what all strategies they adopted…it will be finalised, maybe in the coming two quarters,” Prabhakar added.

Banks go aggressive

Banks have been aggressively chasing growth in the high-return but exposure-wise unsecured credit card business. Axis Bank on March 30 announced the acquisition of Citibank’s India consumer business for $1.6 billion in an all-cash deal.

Calling the deal a “once in a lifetime” opportunity, Axis Bank MD & CEO Amitabh Chaudhry said the buyout will give Axis Bank access to 2.5 million Citibank customer cards and result in a 31 percent increase in its existing card base.

The largest private sector lender HDFC Bank, after losing major market share in the credit card space due to a temporary ban on new digital offerings last year, is also coming out with a renewed and aggressive approach towards gaining market share.

In an interview with Moneycontrol on March 17, HDFC Bank’s Group Head of Payments, Consumer Finance, and Digital Banking, Parag Rao, said the bank is on an aggressive drive to recover lost ground in the credit card business.

“We are thankful to the RBI for pointing out some of the areas where we needed to improve. HDFC Bank has consistently grown quarter on quarter. I will not delve into our track record of growth… We have set a legacy of good track record of growth and we continue growing and we have aggressive plans to grow,” Rao said.

Analysts said Canara Bank’s ambition for a separate credit card subsidiary may have increased after seeing how other PSU bank subsidiaries are performing.

State Bank of India, via its subsidiary SBI Cards, generated Rs 1,035 crore in profit after tax (PAT) for the nine months ending December (9MFY22) last fiscal. Its return on equity or ROE stood at 20 percent for 9MFY22.

“Credit card business can be fairly lucrative for banks. Setting up this under a subsidiary can allow a more focused approach to growing the business. Also, for PSU banks, it offers added flexibility to hire talent from the market as the bank subsidiary has fewer restrictions on offering compensation compared to PSU banks,” said Prakash Agarwal, Director, and Head of Financial Institutions at India Ratings & Research.

NBFCs enter fray

Non-banking finance companies (NBFCs) have been issuing credit cards in partnership with brands. These cards are called co-branded cards.

However, the Reserve Bank of India (RBI) on April 21 issued a directive that NBFCs can offer their own credit cards if they receive regulatory approval first and have a certificate of registration.

For co-branded cards, the RBI said the role of the co-branding partner will be limited to the marketing and distribution of the cards. Additionally, the co-branding partner shall not have access to information relating to transactions undertaken on the card.

This move has opened floodgates for NBFCs to offer their own credit cards. Moneycontrol on May 4 exclusively reported that Mahindra Finance is exploring the possibility of launching a credit card for its customers and employees. Even the Shriram Group has not rejected the idea of issuing their own credit cards.

“We are not saying no. We are looking at the possibility (of issuing credit cards),” Shriram Transport Finance MD & CEO Umesh Revankar told Moneycontrol.