HDFC Bank turns dominant in India’s credit card market (HDB)

HDFC Bank Limited (NYSE:HDB) looks poised to outgrow its peers in 2011 as it captures more of the credit card market and continues to surprise analysts to the upside.

With rising defaults on personal loans in India, the country’s credit card market has undergone subtle but seismic shifts over the past two years, and it’s beginning to look like HDFC Bank Limited (NYSE:HDB) is poised to come out on top. The company defied market expectations last quarter by reporting a 33 percent rise in net profits.

The number of active credit cards in India has tumbled since March of 2008 from 20.75 million to 10.82 million as of November 2010, according to the Times of India. Unlike most domestic and foreign banks operating in the country, though, HDFC has aggressively grown it’s credit card portfolio.

“Industry officials estimate that HDFC Bank is nearing leadership position, followed by ICICI Bank (ICICI Bank Limited, NYSE:IBN) and SBI Cards,” Mayur Shetty writes in the Times. “Although HDFC has been the most aggressive in card issuance, its card customers are predominantly account holders in the bank.”

Rising interest rates and higher commodity prices will likely crimp borrowing going forward, but the Head of Equities at Ambit Capital, Saurabh Mukherjea, expects HDFC to outperform the sector.

“There will be consensus pullbacks in our FY12 economic growth rates and the banking sector will see some pullback on the back of that,” Mukherjea told the Economic Times. “But by and large the higher quality banking names, HDFC in particular, will outperform the rest of the sector as we enter a softer period from an economic growth perspective.”

The Royal Bank of Scotland ranks HDFC highest among private-sector banks in India, according to Reuters. Analysts there have retained a “buy” rating on HDFC, “hold” on ICICI Bank and “sell” on Axis Bank (AXBK.BO).

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