While the asset quality of HDFC Bank, India’s largest private lender, has improved significantly, technical glitches continue to impinge on its overall lending quality.

Share Market Live

NSE

In the last two years, HDFC Bank has reported a series of technical issues in its digital transactions. The incidents involve outages in the payment utilities and the internet and mobile banking services. These outages were sooner or later linked to the power outages in the bank’s data centre.

Here's everything you need to know about how technical glitches continue to impact HDFC Bank.

Background

It’s digital banking services last faced an outage on November 21 for two-three days. People could not withdraw money from ATMs, and net-banking, debit/credit cards were inoperative as well.

A similar outage was observed in December 2019, locking the customers out of their mobile and net banking accounts for over 48 hours. In 2018 also, its services were inoperable following an app upgrade.

Taking cognizance of frequent outages, in early December 2020, the banking regulator advised the bank to halt the launch of new digital banking services. It also barred the bank from sourcing any new credit card customers.

The banking regulator also asked HDFC Bank board to examine lapses and fix accountability.

In an exchange statement, the bank had revealed that lifting of regulatory measures will be considered only after “satisfactory compliance with critical observations” made by RBI.

In a letter to its customers, HDFC Bank’s MD & CEO, Sashidhar Jagdishan, had said the bank would work with experts and regulators to fortify the identified areas for improvement.

He said:

“Some of our strategic digital initiatives to improve the front-end digital experience, improve digital origination, straight-through processing, next generation of mobile and internet banking, APIs based banking on edge, etc. would now be readied and launched post the approval and clearance from the regulator.”The latest action

For now, the bank has given a short and long-term plan to the regulator. As per sources, its tech strengthening plans will take three months. Once implemented, it will await RBI’s assessment.

HDFC Bank will follow the short-term plan with a long-term plan on architectural inefficiencies, cloud computing, and disaster recovery process.

The long-term plan might take up to 12-18 months in execution.

The sweltering significance

Even in 2021, the banking system is ailed by system malfunction due to unexpected loads. And the largest bank with asset class just underwent a major league transformation in its leadership: Aditya Puri has bequeathed S Jagdishan with these technical glitches, and if not reined, customers might lose faith in the bank. Notably, it draws a significant portion of its transactions through digital channels. According to an annual report, it recorded over 95 percent of its transactions online. Further, according to RBI, HDFC Bank is the highest issuer of credit cards in the country, with over 1.5 crore cards in force as of September 2020. Consequently, these frequent outages stand to impede customer experience and hurt brand credibility.

More often than not, in a bid to outperform the competition, banks often develop new products without proper testing. And while HDFC had new launches in the pipeline, their immediate future looks grim. These actions will delay the launch of its Digital 2.0 initiative under which it aims to consolidate all digital transactions of a customer into one platform. The bank was also planning to launch its auto loan portal in the coming months.

That said, experts say the payment industry is not equipped to handle such massive volumes of transactions. Apparently, a decade-old infrastructure is incompetent to manage 2.2 billion daily UPI transactions (as per November 2020 data).

Suresh Ganapathy of Macquarie, in his note, said:

“When the bank is growing at a rapid pace and running way faster than the system, challenges are bound to crop up in our view. While the system loan growth has been at 5 percent, HDFC Bank has grown its loan book almost 3x that of the system, and this growth comes on the back of a 10 percent market share base. Add to that; they have a market share of 35-40 percent in the payments market. While market share in credit cards on an outstanding basis was 26 percent for HDFC Bank, on an incremental basis, market share was 31 percent CYTD’20. So, when growth is happening at such a furious pace, technology, unfortunately, is not able to keep up the pace in our view.”

The bank recently said that it is adding more capacities to its payments system to avoid such instances. Clearly, band-aid solutions won’t work anymore.

(Edited by : Aditi Gautam)