Multiple digital outages reported by private sector lender, HDFC Bank, are credit negative, global rating agency Moody’s said on December 7. Last week, the RBI asked the lender to temporarily halt all new digital launches following multiple instances of digital outages. The bank has assured that it is working with the regulator on the issue and the customers will not face any problems.
On December 3, HDFC Bank announced that the RBI asked the bank to temporarily stop all launches under its Digital 2.0 initiative and stop sourcing new credit card customers. The announcement came after the bank experienced multiple outages in its internet banking, mobile banking and payment utility services over the past two years.
The regulators' action is in response to weaknesses in HDFC Bank's digital infrastructure and operational resilience and is credit negative because the bank is increasingly relying on digital channels to source and service its customers.
The recurring outages also risk hurting the bank's brand perception among a growing and increasingly digitally savvy customer base, and increases the potential that clients switch to other banks, which would lead to a reduction in revenue and low-cost retail funding, Moody’s said.
“We do not expect the regulators' action to materially affect the bank's existing business and financial profile. Nevertheless, the RBI action will delay the launch of HDFC Bank's Digital 2.0 initiative, under which the bank aims to consolidate all customers' digital transactions, including payments, savings, investments, shopping, trade, insurance and advisory services, into one platform. This has the potential to increase spending to improve the bank's digital infrastructure, which would strain its profitability,” Moody’s said in a release on December 7.
HDFC Bank, the second-largest bank in India by deposits, leads in terms of digital transactions processed. In the fiscal year that ended in March 2020 (fiscal 2020), about 95 per cent of the bank's retail transactions were conducted digitally, up from about 85 percent in fiscal 2018, Moody’s said.
In a letter to customers last week, HDFC Bank’s CEO CEO Sashidhar Jagdishan said the bank will comply with the RBI regulations and will wait for the regulator’s clearance before launching new products.
“We had two outages, one in November 2018 and second in December 2019. We have taken help of external expertise, understood what needs to be done further and have substantially implemented the inputs to strengthen our IT infrastructure and systems,” Jagdishan said in a letter to customers.
“Unexpectedly another incident happened on November 21,2020, and the primary reason for the same is the power outage in our primary data centre. We are working on war footing to strengthen this area also now,” Jagdishan said.
Jagdishan assured customers that there is no reason to worry. “You can continue to transact with the bank without any concern,” he said.
Jagdishan apologised for the digital outage to customers. “We realize that as our valued customer, you expect us to maintain a very high standard of service quality and experience. And sometimes, we have not been able to live up to your expectations. For that, please accept our sincere apologies,” the CEO said in the letter.
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