Experts predict that HDFC Bank’s wait to resume issuing new credit cards will grow longer, as back-to-back technical issues it encountered last month prompt the Reserve Bank of India to maintain the ban.
The outages are likely to result in an adverse audit report from the RBI-appointed company, as the central bank has little tolerance for outages.
“Due to the recent outage, we believe the chances of an adverse report increases and hence the ban on issuance of new credit cards and launch of digital 2.0 banking could further get delayed,” said Suresh Ganapathy, associate director at financial services firm Macquarie Capital.
Technical Glitches And Outages
The RBI ban was scheduled to be lifted by June 2021, according to previous estimates. Last month, HDFC Bank encountered two technical problems, as well as two major outages in the previous two years.
This isn’t the first time HDFC Bank has experienced technological difficulties. In reality, the State Bank of India (SBI), the country’s largest lender, has reported issues with the digital channel YONO.
The RBI’s intervention in December was meant to be a clear warning to Shashidhar Jagdishan’s new management to get the technology capabilities ready and prevent more slips.
On March 30, HDFC Bank reported another problem. It said some of its customers are having trouble accessing its digital banking platforms regularly. Later in the day, the HDFC Bank spokesperson confirmed that the matter had been resolved.
“The issue faced by some of our customers in accessing net banking/mobile banking stands resolved. We apologise for the inconvenience caused and thank you for your patience,” the spokesperson said.
There have been reports of technology problems on digital banking platforms from other lenders. There is no clarification on this topic yet, whether it is due to large transaction rates or some glitch.
HDFC Needs More Checks
The bank has a 35-40% market share in payments and a 25% market share in credit cards. Before the Covid-19 outbreak, HDFC Bank used to add about 200,000 credit cards every month.
“When growth is happening at such a rapid pace, technology, unfortunately, is not able to keep up, in our view,” Suresh Ganapathy, associate director at financial services firm Macquarie Capital said. “Many investors argue that all these episodes could result in de-rating of the stock. In our view, a lot depends on HDFC Bank’s ability to add customers and expand.”
“Banks like HDFC Bank has had uninterrupted growth in the past. They were early adopters of digital technology platforms. However, investment in the front office and digital channels are not balanced by investment in mid-office and back office,” said Jaya Vaidhyanathan, CEO, BCT Digital.
“Digital channels and growth in the number of customers have been given a lot more importance by banks than investments in fundamental software and technology capabilities. The more you keep adding weight on the top of a weak foundation, it will collapse eventually. It is not collapsed yet, but it will at some stage,” Vaidhyanathan observed.
“More checks and balances need to be built into the system before it is offered to the public. More extensive UAT (user acceptance trial) is needed so that the system remains bug-free,” Naresh Malhotra, senior banking consultant, stated.
“Banks have to ramp up their technology capabilities to deal with the high volume of digital transactions and a lot of additional features. They need to make sure slips do not happen. As we have seen in some of these cases, banks have not been very proactive,” said Ashvin Parekh of Ashvin Parekh Advisory, quoting an update from Money Control
“These systems were built for a fewer number of customers in the past. But that scenario has changed in the last few years and COVID has accelerated the volumes. And also, it is expected that the regulator is fairly proactive,” Parekh added.
The RBI had hired an outside specialist IT company to conduct a special audit of HDFC Bank’s entire IT infrastructure.
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