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RBI’s third party audit of HDFC Bank’s IT systems over, await regulator’s decision, says MD&CEO… – Moneycontrol

In the annual report, Jagishan laid out some of the specific initiatives that the bank has planned on its technology transformation agenda even as the regulator is awaiting the final nod on new launches from the RBI.

The RBI-appointed third party audit of country’s largest lender, HDFC Bank’s IT systems has got over and the audit report has been submitted to the regulator for a final decision, said HDFC Bank’s managing director and CEO, Sashidhar Jagdishan in the bank’s integrated annual report 2020-2021.

In December last year, the RBI had banned HDFC Bank from new digital launches, including issuing new credit cards and proceeding with the so-called Digital 2.0 plan following a series of technical glitches reported over the last two years. Subsequently, the RBI also initiated a third party audit of the bank’s IT systems. “This audit is now over and the report has been submitted to the regulator. We now await the decision from RBI,” said  Jagishan in the report.

“As a Bank we are certainly sorry for what has happened. And have taken this as an opportunity to improve and redouble our efforts to fix this problem for good. We have now embarked on a scale changing technology adoption and transformation agenda to help drive our ambitious future growth plans,” Jagdishan said.

In the annual report, Jagishan laid out some of the specific initiatives that the bank has planned on its technology transformation agenda even as the regulator is awaiting the final nod on new launches from the RBI.

The plan

As part of this, the bank has invested in the infrastructure scalability, Jagdishan said. “We have invested heavily in the scale up of our infrastructure to handle any potential load 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,” Jagdishan said.

Further, the bank has strengthened its disaster recovery resiliency, the CEO said. “We have strengthened our process of monitoring our Data Centre (DC) and have shifted key applications to a new DC. This includes key consumer facing ones. We have strengthened the Disaster Recovery trials and processes so as to bounce back to serve our customers faster and quicker,” Jagdishan said.

One of the reasons often cited by the experts for HDFC Bank’s technology outages was lack of capability in the data centre. In this context, the bank’s announcement is significant.

Further, the bank has strengthened the security enhancements over the IT systems, Jagdishan said. “We have strengthened our firewalls further. 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.

Jagdishan also spoke about the monitoring mechanisms that bank has put in place to avoid further likely issues. “An enhanced application monitoring mechanism has been put in place across the board to enable us to keep our IT systems always on,” Jagdishan said.

Jagdishan’s moves

Under Jagdishan, HDFC Bank wants to claw back lost ground in the digital business, overcome legacy issues that have put the lender under a cloud in the past two years and team up with new technology partners to cement its position as the country’s preeminent bank.

Part of the plan is to build a “digital bank within the bank,” according to a June 2 report by Bernstein Research titled HDFC Bank: A digital bank within the bank with Zeta? The report outlined a plan for a major revamp within the bank to create a digital bank for new customers, eventually encompassing its entire retail customers base.

“Is HDFCB building a digital-native bank within the bank? This is what it seems like from public posts of a startup called Zeta (private). Zeta’s pitch is to be the cloud-native ‘Omni-Stack’ for banks – a single software solution for cards, loans, deposits with customizable web and mobile interfaces.” Berstein Research said.

It said the planned entity would be first targeted at digital-first users that would gradually evolve into a scalable platform for the entire retail franchise of HDFC Bank. Bernstein referred to a fundraising announcement by Zeta that talked about a partnership with HDFC Bank to “re-define banking in India.”

HDFC Bank has, according to its annual report, a total of 56 million customers, which would include individuals, small and medium enterprises and corporate entities. “The 25 million customer base quoted by Plutus suggests it may be a retail/individual-focused solution,” the report said.

Digital 2.0

Already, HDFC Bank has drawn up a digital expansion road map–what it calls a Digital 2.0.  The bank has a number of digital launches planned across various business verticals under the 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.”

Other initiatives include My Account My Choice where current account, savings account (CASA) customers can choose any account number of their choice when they sign on as an HDFC client. It will offer card-less cash withdrawals, 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 have already been launched.

HDFC Bank is one of the biggest card issuers in the country with 15 million credit cards and 33.8 million debit cards as of December-end.  HDFC Bank’s retail portfolio had grown by around 7% in the year ended March. Within the retail franchise, HDFC Bank expanded its credit cards business by 12% and home loans by around 10%.

HDFCB could first launch Plutus for a digital-first audience and subsequently scale this for its entire retail bank operation, Bernstein Research said. “Digital banks in emerging markets offer interesting case studies in customer acquisition and growth– Banco Inter (covered by Autonomous’ Geoffrey Elliott), NuBank (private). Building a digital bank within a bank could be a smart way to build within Indian regulatory constraints,” the report said.

The ban has presumably benefitted its rivals, including ICICI Bank Ltd, by offering them an opportunity to gain customers. ICICI Bank has aggressively pushed new digital initiatives including IMobilepay, a mobile banking app that provides payments and banking services to customers of any bank. In the March quarter, ICICI Bank’s cardholder base grew by 672,911; HDFC Bank’s portfolio contracted by 322,999 in the same period.