Banking regulator, Reserve Bank of India (RBI), which barred country’s largest private bank, HDFC Bank from new digital launches and issuances of fresh credit cards in December last year, is yet to lift the ban on the bank. The RBI action was triggered by frequent outages in HDFC Bank’s digital services reported over the last two years.
In a recent analyst call, the bank said the third party audit of bank’s IT infrastructure by an RBI-appointed auditor is still underway. Once the audit is over, the RBI will take a call based on the feedback from the auditor, the bank said. There is no clarity on how long this process will continue.
On December 3, HDFC Bank announced that the RBI had asked the lender to temporarily stop all launches under its Digital 2.0 initiative and stop sourcing new credit card customers. This was an unusual step on the part of the regulator.
The announcement came after the bank experienced multiple outage in its internet banking, mobile banking and payment utility services over the past two years. The RBI also asked the Board to look at the issue and strengthen the technology framework.
To be sure, HDFC Bank isn't the only bank which has reported technology problems. It's bigger rival, State Bank of India too has reported frequent technology glitches.
Digital 2.0 in limbo?
The RBI ban put the HDFC bank's future digital expansion plans on a slow track. HDFC Bank has a number of digital launches planned across various business verticals under the Digital 2.0 initiative including the launch of an auto portal, which the bank calls a one-stop shop for all vehicle loans.
The bank describes Digital 2.0 as “ the next phase of our digitisation journey.” Under this, other initiatives include My Account My Choice where CASA customers can choose any account number of their choice while opening an account, Card-less cash withdrawal, WhatsApp Banking and smart slips that enable customers to fill in cash deposit, withdrawal and cheque deposit slips through NetBanking using a reference ID, and complete the transaction at a banking outlet. Some of these services are already launched.
HDFC Bank is one of the highest credit card issuer in the country with 1.5 crore cards and about 3.38 crore debit cards as at end December. This is ahead of SBI (around 1.1 crore) and ICICI Bank (less than a crore). HDFC Bank’s retail portfolio has grown by around 7 per cent as on March, 2021 from the year-ago period. Within the retail, HDFC Bank grew its credit cards business by 12 per cent and home loans by around 10 per cent.
The ban on new digital launches and on fresh credit cards have not impacted the lender significantly since majority of the business is sourced from existing customers, said a person tracking the developments at the bank. “The bank has grown its portfolio of cards and other retail products over a period of time. Short-term issues will not have much impact on HDFC Bank,” said the person requesting anonymity.
In the last 28 months, HDFC Bank has had five instances of downtime. Following this, the RBI acted in December 3 imposing a ban on the bank and later followed up by appointing an auditor to look at HDFC Bank’s IT infrastructure in February this year. This external professional IT company was asked to to conduct a detailed audit of HDFC Bank’s IT Infrastructure and submit a report at the earliest. This process is ongoing.
In his letter to employees on Monday, HDFC Bank CEO, Jagdishan said the bank is working with the regulator to resolve the technology issues. “While we execute this Technology Transformation agenda, there will sometimes be pain and outages beyond our control. We must doubly resolve to reach out proactively to our customers / stakeholders and explain the path that we are traversing to make their experience with us smoother, faster and better,” Jagdishan said in the letter.
Moneycontrol has a copy of the letter. “It is in this context, one has to see the advisories and strictures by the regulators calling for accelerated adoption and process changes. We are working with them closely to overcome the current situation,” Jagdishan said.
Further, HDFC Bank has embarked on several digital transformation initiatives, Jagdishan said. “We have invested heavily in the scale up of our infrastructure to handle any potential load that we will encounter for the next 3/5 years. We are also in the process of accelerating our cloud strategy to be on the cutting edge leveraging best in class cloud service providers,” the CEO letter said.
Also, the bank has strengthened its process of monitoring our Data Centre (DC) and have shifted key applications to new DC, the letter said. Thirdly, the bank has strengthened the firewalls further, Jagdishan said. “We have to be scanning the horizon for potential security issues and be ever prepared to face them. We haven’t had any security issues in the past. But this is always an important area of focus and action plans are underway for further robustness,” the CEO said. Besides, “HDFC Bank has also enhanced application monitoring mechanism across-the-board to enable us to keep our IT systems always on,” Jagdishan said.