Private bankers put their money on 'middle India'

Indian banks, after having provided credit card services to 17.6 million people in Tier-I and -II cities, are expanding their footprint in smaller towns -- some with population of less than 20,000.

The saturation of demand in the country's top 10-15 cities has impelled banks to set out for deeper geographies.

This initiative is being spearheaded by private sector banks like HDFC Bank and Axis Bank.

The cities where credit cards are being rolled out include Singur in Bengal, Wani in Maharashtra, Kadiri in Andhra Pradesh and Champa in Chhattisgarh.

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HDFC Bank, the largest issuer of credit cards in the country, already has penetration in some of the Tier-II and -III towns with its credit cards bouquet.

According to senior executives of the bank, close to 35 per cent of its new card issuances every month are in these markets now.

A year back, these centres contributed only 18.5 per cent to the bank's new card issuances.

"We had a record profit in the credit card business last financial year. We are already a leader in the space.

"So, to sustain our growth, we need to increase the size of the market.

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"Our philosophy is to have an entire array of retail products available in new branches within a few months of a branch being set up," Pralay Mondal, country head for retail assets and credit cards at HDFC Bank, told Business Standard.

Axis Bank, India's third-largest private sector lender, also aims to expand the reach of its credit card business beyond the major cities. It is yet to take it to smaller geographies in a big way.

But senior executives said plans were being finalised to enter these markets too.

"We are interested in taking our credit card business to smaller towns. We will leverage our merchant acquiring capabilities to increase the acceptance for our cards in these areas," Jairam Sridharan, head of consumer lending and payments at Axis Bank, said.

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HDFC Bank has a portfolio of 5.6 million cards and currently offers credit cards at 800 locations.

The lender has presence across 1,399 cities.

"We aim to cover all the locations where we are present," Parag Rao, senior executive vice-president and business head of credit cards and merchant acquiring services at HDFC Bank, said.

Axis Bank is currently present in 1,050 cities and towns.

The number of outstanding credit cards in the country has been declining since the financial crisis of 2008-09.

This is because most banks had reduced their credit card businesses or exited the operation fearing deterioration in their asset quality.

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But, with the macroeconomic environment and credit bureau data improving, banks have again started offering credit cards aggressively.

Bankers, however, said the urban centres appeared saturated, with all the players looking to gain share in these markets.

So, leading private banks were now moving to smaller towns and cities with their credit card bouquet.

The outstanding number of credit cards was at 17.57 million as of February 2012, compared with 18.13 million a year ago.

The number has remained more or less steady since April 2012, after declining every month for almost two years.

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HDFC Bank is the largest issuer of credit cards in India, followed by ICICI Bank, State Bank of India, Citibank and Standard Chartered Bank.

Bankers said the acceptance for banks' credit cards had so far been limited in small towns, as most merchant outlets in these areas were not equipped with point-of-sale terminals.

It is estimated 40-50 per cent of the credit card spend of a customer staying in a smaller town still happens in a metro city.

Besides expanding their cards business, private banks are also increasing the number of POS terminals by partnering local merchants.

For instance, HDFC Bank had opened 100,000 POS terminals in 2011-12. Of those, around 30 per cent were set up at Tier-II and -III locations.