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HDFC Bank is looking to tap into the customer base of Chennai-headquartered Equitas Small Finance Bank (SFB) with two co-branded credit cards launched on Tuesday. The target is to issue the cards to 20% of Equitas SFB’s customer base over the next 12-18 months.

The two categories of cards on offer will be the Excite credit card, with a credit limit between Rs 25,000 and Rs 2 lakh, and the Elegance credit card, with a credit limit of over `2 lakh.

Murali Vaidyanathan, senior president and country head – branch banking liabilities, products & wealth – Equitas SFB, said close to five lakh customers will be eligible for the cards. “At a product penetration level, at least two in every 10 customers should have our co-branded card one year or 18 months from now — that is the approach within the qualified base with which we are moving forward. That means we are talking 20-25% penetration of the qualified base which incrementally gets added every month,” he said.

The underwriting for the co-branded cards will be done by HDFC Bank using the processes and algorithms it uses for its other customers. The outstanding amounts will also be reflected on HDFC Bank’s books.

Parag Rao, group head – payments, consumer finance, digital banking & IT, HDFC Bank, said the bank intends to address the under-penetration of electronic payment instruments in India and expand the market in association with Equitas SFB, whose roots lie in microfinance. “We’ve decided that competition and working with competition actually is a merit rather than a demerit and therein comes our strategy of partnerships with other banks,” Rao said.

He said, “Our job, beyond just looking at businesses at HDFC Bank, as market leader is to expand the market and we do believe partnerships and alliances wherein two like-minded entities come together for a co-created product to offer it to a certain set of customers will only deepen the market.”

HDFC Bank leads the credit card market in terms of the number of cards in force, with 1.5 crore cards outstanding at September-end as per data from the Reserve Bank of India. The bank’s incremental issuances took a hit between December 2020 and August 2021 due to a regulatory embargo on new credit card issuances during the period. Rival ICICI Bank took pole position in new issuances during the eight-month period. HDFC Bank is now working to claw its way back to the top. In August, the lender had said it would recoup its share over the next three to four quarters.

The co-branded cards will be issued by Visa. TR Ramachandran, group country head – India, Sri Lanka and Bangladesh, Visa, said credit card penetration in the country stands at about 6% in terms of the number of cards and only 3-4% in terms of individuals owning credit cards.

“There is a large nascent market for everyday digital payments more so on the credit side, because credit is also becoming a day-to-day feature rather than only for luxury and discretionary items, which means grocery, transport, everyday spends particularly —as the line between online and offline payments blurs,” Ramachandran said.

The cards will be issued through application programming interface (API) banking. As a result, there will be no data flow from Equitas SFB into the HDFC Bank system, Vaidyanathan said. “We will let the rule engine decide. We’ll pre-qualify accounts on first sight and then start selling it to our consumers,” he said.

Thereafter, based on Cibil ranking, Equitas will start identifying new-to-bank customers. “HDFC Bank handles only the card side of the issue and they will have the details relevant to the card with them and nothing from liabilities or transactions will be reflected or seen on that side,” Vaidyanathan said.