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RBI’s rap on HDFC Bank underlines a new risk for investors – Mint

In a rare act of tough love, the banking regulator has pulled up India’s most valuable lender for repeated outages in its digital services.

HDFC Bank cannot take on board any new credit card customers and will have to halt its planned digital launches until it resolves the issue.

Also Read: Inside India’s Quest to Fix Its Payments Puzzle

The Reserve Bank of India (RBI) has not acted in haste nor has it acted harshly. Reports of issues in digital transactions have surfaced time and again for HDFC Bank customers in the past few months. Last month, the lender said its services were impacted by technical issues due to a power failure at one of its data centres.

But HDFC Bank cannot be singled out when it comes to technological misgivings. India’s lenders, be its slow-to-change public sector or nimble private sector, have been struggling to match the technological finesse of new fintech players. The scale of their business has made adapting to new technologies and fixing bugs in existing ones a huge challenge. Even so, the regulator has so far taken a rather benign view of such misgivings.

But the latest rap on HDFC Bank signals a change from the RBI. “These issues have happened before as well. But what the RBI has done is set a precedent by telling banks that they have to take this seriously and their customers seriously,” said Gautam Chhugani, director, financial and fintech at Bernstein research.

What stands out is not just the incidence of penalty but nature as well. The regulator, instead of a monetary penalty, has put curbs on potential business of the bank. That said, analysts believe the curbs won’t hurt HDFC Bank in a big way. “We believe that the resolution of this issue could take 3-6 months as RBI, board and even independent consultants may be appointed to assess the problem and suggest resolution,” wrote analysts at Jefferies India Pvt Ltd in a note.

Indeed, the bank’s stock dropped by just a little over 1% in reaction to the curbs today. Nevertheless, HDFC Bank is the biggest credit card issuer in the country. Its close rival, SBI Cards and Payment Services Ltd stands to gain immensely. SBI Cards has been aggressive in getting new business and even more so after the pandemic. No wonder its shares surged over 5% today as investors saw a gain in business.

Chhugani pointed out that the curbs may not materially impact the bank but the stance may bring about a change in the attitude of India’s lenders. Banks need to up their game on the digital front by fixing their issues proactively. The banking regulator has sat up and taken notice. Soon, investors too may begin to do the same.



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