RBI diktat: HDFC Bank told no digital launches, new credit cards

More than a week after HDFC Bank’s digital payment channels saw their third outage in as many years, the Reserve Bank of India (RBI) has directed the lender to halt launches of fresh digital offerings. In an unprecedented move from the regulator, the country’s largest private lender has also been barred from issuing new credit cards, it informed the stock exchanges on Thursday. The bank apologised to its customers for the gaps in service.

The measures will also affect the bank’s plans for two projects which the management had described as “game-changing” on its last post-results analyst call. One involved the launch of a dedicated platform for vehicle lending in the four-wheeler and two-wheeler categories. The other concerned its unsecured personal loan business, where it had been preparing to substantially digitise the open market acquisition over a three to five-month horizon.

HDFC Bank is the market leader in terms of credit card volumes and spends, with 14.98 million credit cards in circulation at the end of September. Fees from the cards and merchant acquiring businesses also constitute important lines of revenue for the lender. After the development was made public, its shares erased gains to end 2.13% lower than their previous close on the BSE at Rs 1,377.05.

“The RBI vide said order has advised the bank to temporarily stop i) all launches of the Digital Business generating activities planned under its program – Digital 2.0 (to be launched) and other proposed business generating IT applications and (ii) sourcing of new credit card customers. In addition, the order states that the bank’s board examines the lapses and fixes accountability,” the lender said.

The measures shall be considered for lifting upon satisfactory compliance with the major critical observations as identified by the RBI. HDFC Bank said that over the last two years it has taken several measures to fortify its IT systems and will continue to work swiftly to close out the balance and would continue to engage with the regulator in this regard. “The bank has always endeavoured to provide seamless digital banking services to its customers. The bank has been taking conscious, concrete steps to remedy the recent outages on its digital banking channels and assures its customers that it expects the current supervisory actions will have no impact on its existing credit cards, digital banking channels and existing operations,” it said, adding that the measures will not materially impact its overall business.

Experts said that the regulatory action, coming as it did after three years of the first instance of disruption, is meant to signal that there was enough time given to the regulated entity to fix its systems and they had still failed to do the needful. Therefore, the outage merited more than a monetary penalty. “The RBI here is trying to signal to the customers of the entity that they are taking steps. Secondly, the entity is being given a pause because they are expected to do a complete 360-degree evaluation of what went wrong and how it can be set right. If that happens at a time when growth is also happening, then the efficacy of the steps they take may not be properly evaluated or even reflected to the customers,” said an industry expert.

HDFC Bank’s MD and CEO Sashidhar Jagdishan said in a message to the bank’s customers the bank had had two outages, one in November 2018 and another in December 2019. It has taken the help of external expertise, understood what needs to be done further and substantially implemented the inputs to strengthen its IT infrastructure and systems. “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 wrote, adding, “We realise 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.”